Ireland may still need extra budget savings, warns economic thinktank

An economic thinktank says additional fiscal adjustments are still warranted despite the latest troika review suggesting that Ireland is on course to meet its deficit reduction targets.

While Finance Minister Michael Noonan said that the country remained on track to meet its 8.6% of GDP budget deficit target for this year, he is expected to officially downgrade the Government’s economic growth forecasts in the coming days — possibly from 1.3% to more in line with consensus estimates of between 0.5% and 0.75%.

Yesterday, he said that, on the back of the latest troika review of Ireland’s bailout programme, that there was “nothing on the horizon that would require a mini-budget”.

However, appearing before the joint Oireachtas finance committee yesterday, representatives of the Irish Fiscal Advisory Council (IFAC) said that additional budgetary savings could be needed.

“We think some moderate additional financial adjustment, out to 2015, is warranted,” said IFAC chairman John McHale.

Earlier this month, the council suggested an extra €400m might be needed to be found in this year’s budget and a further €2.8bn between 2013 and 2015, although it said this was a worst-case scenario rather than a definite requirement.

Yesterday, the troika said that the Irish programme remained on track but that significant challenges remained. It also said that Ireland’s planned return to the public funding markets faced “significant headwinds”, with modest economic growth this year likely to keep Irish borrowing costs high.

IFAC seemed to agree with this prognosis, adding in its presentation to the Oireachtas committee that it could be prudent for Ireland — via the NTMA — to wait for “quite a bit longer” than the end of next year to return to the bond markets.

The council added, however, that the Government would need to have an idea of where future funding would come from by the middle of next year.