IMF: State faces €16bn in fresh losses

The Government could be looking at €16bn in fresh losses through its stakes in the banking system and Nama, according to the IMF.

The potential losses, which would be the equivalent to 10% of GDP, are based on the economy failing to grow over the next few years. The IMF report was carried in yesterday’s Sunday Business Post.

The IMF’s ninth quarterly review of the economy, released on Wednesday, raised a number of concerns about Ireland’s ability to make a sustained re-entry to the market when it exits the bailout programme later this year.

The banks face a mounting mortgage arrears crisis. It is not yet clear the scale of these losses as they work their way through their distressed loan portfolios.

As part of the troika review, the Central Bank is scheduled to conduct a series of stress tests of the banks to determine the losses likely to incur.

Finance Minister Michael Noonan wants the tests to coincide with EU-wide bank stress tests scheduled for next March. However, IMF mission head to Ireland Craig Beaumont wants the tests completed before Ireland exits the bailout in November. Central Bank chief economist Lars Frisell said on Friday the date of the stress tests still has to be finalised.

It is unclear who will supply the capital if the banks need to be recapitalised following the stress tests. The IMF wants funds from the European Stability Mechanism to be used. Germany, Finland, and Holland are opposed to this.

The biggest uncertainty is growth. If the growth rate averages 0.5% over the next few years, then debt will grow to unsustainable levels.

The unemployment rate would rise, worsening mortgage arrears, and Nama losses mount as the property market fails to recover.