OECD ‘won’t lose sleep’ over cuts if target met

The OECD is not “going to lose sleep” over the nominal amount of cutbacks in October’s budget as long as the deficit reduction targets agreed with the troika are met.

That is according to the OECD secretary general, Angel Gurria, who said: “The targets are set in percentage of GDP and it is my understanding that you [Government] are going to hit the targets.”

Mr Gurria was speaking in Dublin following the launch of the OECD’s latest survey on Ireland.

The total level of cutbacks to be introduced in October’s budget has opened a rift between the Government and troika.

Under the EU/IMF bailout programme, the Government has agreed to reach a 5.1% deficit target in 2014, to be achieved through €3.1bn in tax increases and spending cuts.

However, the roughly €1bn in savings made through restructuring of the promissory notes will enable Government to hit the 5.1% deficit through a lesser nominal amount.

Tánaiste Eamon Gilmore favours pushing through €2.6bn in cuts in October, but the troika remains wedded to the €3.1bn in cuts.

Mr Gurria said the eventual nominal adjustment in the budget would depend on negotiations between the Government and the troika. “It doesn’t take away from the steps you have taken so far. Everybody is doing what they have to do,” he said.

Overall, the economy is moving in the right direction. “As I speak today you are in growth mode. All the indicators are pointing to a recovery and you have regained the confidence of the financial markets.”

Mr Gurria acknowledg-ed “wounds and scars” had been left by the budget cuts, unemployment, and mortgage arrears, but “most of the heavy lifting will soon be behind you. I did not want to say this unless I was confident.”

He said it was important the Government secured a precautionary credit line before it exits the bailout programme in November. It did not matter whether the backstop was extended by the EU or the IMF. “We see a lot of wisdom in this because if the waves get a little rough, there is a backstop. And the experience is, the stronger the backstop, the less likely it will be used.”

The Government is in negotiations with the troika to put in place a €10bn credit facility.