Brussels, 19/07/2013 (Agence Europe) - Ireland may ask its international lenders for a precautionary credit line at the International Monetary Fund and the European stability mechanism (ESM) when its aid plan finishes at the end of the year.
Irish finance minister Michael Noonan said on Thursday 18 July that he would like to see a “back-stop” arrangement agreed with the IMF and EU when Ireland exits its bailout programme in December to “give additional confidence to the [capital]”. He hoped Ireland would never have to utilise this facility. Noonan said: “At issue are four questions: the source of such aid; the size of the credit line; its price; and the strings attached”. If Dublin and its lenders reach agreement by the end of the year, Ireland would be the first eurozone nation to be granted such aid.
Keeping up the momentum. The IMF wants the Irish government to meet its commitment to reduce the budget deficit by €3.1 billion by 2014, as stipulated in the Irish aid programme. IMF representative Craig Breaumont said that the important thing was the amount of savings made, rather than the deficit/GDP ratio as such. The extension of the repayment deadlines for the loans to Ireland (and Portugal) in the spring will give the Irish government some wriggle room for reducing the spending cuts (see EUROPE 10845). Within the Irish government, people are calling for a relaxation of the effort, although Noonan has refused to go along with this.
After its eleventh review mission to Ireland, the troika of lenders (European Commission, European Central Bank and International Monetary Fund) is satisfied with the Irish government's implementation of the structural adjustment programme attached to its aid package. The positive assessment paves the way for disbursement of the €2.3 billion in aid from the EFSF, €800 million from the IMF and €300 million in bilateral loans.
Ireland's lenders forecast modest growth in 2013 (1.1% according to Commission figures) although: “Recent national accounts data show weaker economic activity than previously estimated. At the same time, high frequency indicators have been more positive and the labour market shows signs of improvement. While unemployment remains high, it has now dropped to a three-year low. Overall, modest positive growth is expected this year as the external environment improves and the domestic economy stabilises”. Interest rates on ten-year bonds currently stand at below 4%, but the troika says “such gains are fragile and need to be safeguarded by steadfast programme execution. Further progress towards sustainable public finances is necessary to sustain improved funding conditions. The 2014 budget should bring the high debt and deficit down in line with Ireland's commitments and continue Ireland's track record of steady fiscal consolidation efforts”. Ireland is required to reduce its deficit to 5.1% of GDP by 2014, but the Commission forecasts a 7.5% deficit in 2013.
The troika says that the discussions with the authorities focused on how best to address the remaining challenges, especially the fiscal deficit, unemployment, and banks' non-performing loans. Another challenge is reducing the high level of unemployment, although it currently stands at a three-year low (the Commission says unemployment in Ireland has been over 14% since 2011). The troika says: “The Pathways to Work initiative moves in the right direction, but significantly more resources are needed to ensure meaningful engagement with job-seekers, especially the long-term unemployed. Thus, the mission urged timely redeployment of staff with suitable skills and training, supported by private sector provision of employment services. It remains essential to further enhance competition in sheltered sectors of the economy”. (MB/transl.fl)