Noonan says new target to cut national debt was prompted by the IMF
Michael Noonan said his new target to slash the national debt is being introduced on advice from the IMF.
Last night the Minister for Finance also said this year's controversy over Ireland's growth rate - which has been mocked as "Leprechaun Economics" -was also part of the reason for a new target to bring the debt well below even the levels set out in tough EU fiscal rules.
As part of the Budget Mr Noonan set a target to reduce the ratio to 45pc by the mid 2020s. The EU target is 60pc.
"The reasoning is that we're a small open economy, we're very subject to the slings and arrows of what happens elsewhere in the world," Mr Noonan said.
"When economic shocks hit countries, if they haven't the capacity to borrow, they're in big trouble. And to give oneself the capacity to borrow you need a lot of headroom above the debt-to-GDP ratio," he added.
"I've got advice from the IMF economist who did the last review on Ireland that we'd be better positioned if we could move it to the middle 40s."
Revisions to GDP figures published by the CSO earlier this year put economic growth in 2015 at 26pc.
The extraordinarily high figure - dubbed "leprechaun economics" - sparked fears that multinationals' activities were boosting Irish GDP upward in a way that did not properly reflect the economy's actual performance.
"Because of the controversy around the marking up of GDP there isn't a strong signal in the market that we're getting our debt down as much as we expected," Mr Noonan said.
"My advice was if we could get around 45pc, then if another recession occurred the country would have the capacity to borrow because our base rate of debt would be lower."
Both the Department of Finance and the budgetary watchdog the Irish Fiscal Advisory Council (IFAC) expressed concern about the extent to which Ireland's headline rate of GDP reflects how the economy is truly performing yesterday.
And Goodbody Stockbrokers chief economist Dermot O'Leary warned against complacency on the debt ratio.
"The biggest risk is complacency that just because these headline debt-to-GDP numbers have come down so rapidly, we're not out of the woods," Mr O'Leary told the Irish Independent.
"The Department of Finance has recognised that you need to look at broader indicators and the more that the public debate can reflect those views, the better," he added.
Mr Noonan told the Dáil yesterday that Ireland's economy needs to be fitted with "economic shock absorbers". He said that Ireland's deficit - the difference between what the country takes in and spends in a year - was projected to be 0.9pc of GDP this year and 0.4pc next year. He also said he would put aside "up to" €1bn a year - a "rainy day fund" to be used either for stimulating the economy or preventing it from overheating - from 2018, predicting a surplus then.