THE International Monetary Fund (IMF) has signalled more austerity than expected would have to be imposed in 2015 if the Government eases off in the Budget.
The Washington-based lender stopped short of demanding the Government stick to the €3.1bn target in Budget 2014.
But it has warned that tax hikes and spending cuts of €5.1bn in total must still be imposed by the end of 2015 – suggesting the Government would have to do more in 2015 to plug the shortfall left by having a softer budget next year.
In its latest staff report on Ireland following the 11th review, the Washington-based lender said that while the country has met its targets, recovery prospects are fragile.
“Ireland’s steady consolidation efforts have been rewarded with high credibility and manageable market interest rates,” the Fund said.
“Budget 2014 should protect this achievement by setting out adjustment in 2014-2015 consistent with the €5.1bn cumulative consolidation set out in the 2011 and 2012 Medium Term Fiscal Statements.”
While the planned target this year was €3.1bn, the target for Budget 2015 was €2bn.
This means tax hikes and spending cuts of more than €2bn would be needed in 2015 to meet the €5.1bn target if the Government eases back in Budget 2014, due to be unveiled in just under two weeks.
Finance Minister Michael Noonan revealed this week that he believed the budget adjustment would be “somewhat less than the €3.1bn”.
The IMF said the budgetary target for next year will have to be discussed with the troika of lenders (ECB, EC and IMF).
The international body also scaled back its growth projections this year fractionally to 0.6pc.
Domestic demand is expected to be flat while private spending will shrink because of austerity and attempts to slash household debt, it said.
Growth of 1.8pc is expected next year – weaker than the Central Bank’s prediction of 2pc.
Separately it said resolving the mortgage crisis won’t boost personal spending, but will make banks more willing to lend to less indebted borrowers and give a kick to the property market.
But the revival of growth and investment needed to sustain recovery would be hindered if efforts to tackle the level of bad debts fall short, it added.
The report also said AIB and Bank of Ireland are progressing to break even, but it warned Permanent TSB faces “prolonged losses”.