We are not out of woods yet, fiscal chief warns

There remains a one-in-three chance of Ireland’s debt-to-GDP ratio not stabilising by 2016, a leading economic think-tank has warned.

Addressing Isme’s annual conference, in Dublin yesterday, the head of the Fiscal Advisory Council, Professor John McHale, said that despite Ireland being within weeks of formally exiting its bailout programme, the country is by no means out of the woods.

The troika is confident Ireland’s budget deficit will be reduced to below 3% of GDP by 2015.

“Fiscal policy will require difficult balancing acts for some time, but the worst is behind us,” Mr McHale told delegates.

However, he stressed that there remain serious threats to the Government’s 2014 GDP growth target of 2% being met — with credit still contracting, limited new lending to SMEs and the banks’ balance sheets in need of repair.

Echoing that sentiment, Tom Healy of the Nevin Economic Research Institute said that fully fixing the country’s banking system and returning to plain banking, rather than so-called ‘casino’ banking practices will be “one of the most significant post-troika challenges for Ireland”.

Mr Healy said a more balanced approach to fiscal consolidation is needed across the EU and that no further excessive austerity measures should be implemented.

He also agreed with ISME’s call for a strategic investment bank, saying that the issue of poor credit flow to small firms remains a very serious problem.

Mr Healy called for a more prudent fiscal strategy to be undertaken by government, with smarter investment in social infrastructure also key to the country’s growth.

He added that continuing austerity cannot be ruled out as unemployment and both corporate and public debt overhangs will remain “a huge pressure” on the public finances.

The NERI chief also intimated that while Ireland continues to move towards its 2015 deficit target, getting the structural deficit down to 0.5% — as part of the broader medium-term budgetary objective — could be more of a challenge.


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