IMF agrees to easing of €3.1bn target

The International Monetary Fund has given the Government the green light to ease back on the €3.1 billion Budget adjustment for next year that was originally agreed under the terms of our bailout programme.

However, the Washington DC-based body insists that any shortfall must be made up in 2015 so that the cumulative €5.1 billion consolidation target set out for the next two years is still met.

The Government had already signalled that the Budget adjustment that will be announced on October 15th will be lower than €3.1 billion.

And a senior Government source confirmed last night that a figure “substantially less” than €3.1 billion has been agreed within the Coalition for the Budget adjustment.

The source said the actual figure had been finalised at the Economic Management Council meeting this week , and a joint memo seeking formal approval for the figure will be brought to next Tuesday’s Cabinet meeting by Minister for Finance Michael Noonan and Minister for Public Expenditure Brendan Howlin.

While the source would not disclose the actual figure agreed, it was described as “appreciably less” than the figure recommended by the Troika and others. It is now likely that the adjustment will be below 2.8bn, and possibly below 2.7bn.

Under the terms of its agreement with the EU-IMF, Ireland was to have reduced its deficit by €3.1 billion in 2014 and by €2 billion in 2015.

The IMF, which has loaned Ireland €22.5 billion as part of our bailout package, has now signalled its agreement that the Government can undershoot the target for next year once the shortfall is delivered in the Budget for 2015.

Craig Beaumont, Ireland mission chief at the IMF, said the Government "should maintain" the cumulative €5.1 billion adjustment over the two-year period but added that there was flexibility as to how much is delivered each year.

The IMF said the adjustments were consistent with reaching the agreed deficit target of 3 per cent of GDP by 2015.

Mr Beaumont said the IMF remains open to the possibility of providing a precautionary line of credit to Ireland for when we exit the EU-IMF bailout programme at the end of this year. He indicated that this would only be in conjunction with the EU.

The Washington DC-based fund also said it would be “desirable” for a direct bank recapitalisation backstop arrangement via the European Stability Mechanism to be made available during next year’s bank capital stress tests. He said this would “protect” market confidence in the banks.

Solutions are also being explored to address the funding costs of tracker mortgages. This could include the banks' being allowed to "borrow" a "high-quality balance sheet" as a temporary measure to allow AIB, Bank of Ireland and Permanent TSB to access cheaper funding so that they can increase the pace of lending. Mr Beaumont said this might be an institution or a private bank.

The IMF has revised down its year-on-year GDP forecasts by half a percentage point to 0.6 per cent due to weak results from the first quarter. It said weaker consumption and export growth would likely dampen the pace of recovery next year, with growth of 1.8 per cent now slated.

The IMF report shows too that filings for the local property tax indicate a 90 per cent compliance rate and a yield to the exchequer of €250 million. It urges continued tight controls on Government spending, including “close monitoring of health spending”.