No more time to cut deficit, says IMF

Ireland got a stark message from the IMF when it warned that the country cannot get extra time to cut its budget overrun and must get €24bn for its banks from the EU to avoid a second bailout.

Finance Minister Michael Noonan has said he expects the country to exit the bail-out programme as planned in 2013, but the IMF advised it will not be easy.

The Government needs to take another €3bn out of the economy in December’s budget — and the international lender said it cannot predict the effects of the increased taxes and spending cuts.

While the troika gave Ireland another thumbs up report on meeting its economic and structural targets so far, the IMF did some straight talking during a press conference from Washington.

They seemed to be understanding of the budget overruns in the Department of Social Protection, which they put down to higher unemployment than budgeted for, but they were in no way forgiving on the failure to cut health spending. They blamed it on structural measures and said that all the necessary cuts would have to be achieved next year.

The whole emphasis now is on the country being able to borrow at a reasonable rate of interest from the market as it is weaned off bailout money over the next few months.

“We could not extend fiscal adjustment over a longer period, or it would be unwise to do so, as it would increase the risk that market access would be difficult to obtain”, said Craig Beaumont, the IMF’s mission chief to Ireland.

Greece is about to get an additional two years while there are concerns about Portugal. The fact that Ireland was able to borrow recently at a well reduced rate was partly due to EU leaders giving an undertaking to help the country, he said. But now it was time for them to deliver as the banks continued to threaten the country’s economic future.

“Delivering on European commitments, especially on direct bank recapitalisation is critical to ensure that Ireland deepens its access to markets. Disappointing market expectations could risk Ireland needing ongoing reliance on official financing. That would miss an opportunity for much needed success in Europe,” he said.

The best option was for the State to sell its shares in AIB, Bank of Ireland and PermanentTSB to the EU’s rescue fund — for around €24bn it says — and use the money to cut the country’s debt to a manageable level, from around 120% to 105%.

The IMF also said growth next year would be 1.1%.