IMF cuts its forecast for growth in our economy
IMF favours case-by-case mortgage solutions and backs the government as it rules out widespread debt forgiveness scheme
The IMF has cut its growth forecast for Ireland because of the global slowdown, reducing the room for manoeuvre of Minister for Finance Michael Noonan in December's Budget.
It has also rejected any plan for widespread debt-forgiveness, saying instead that Ireland should simply handle the issue of mortgage debt on a "case-by-case'' basis.
The IMF is now pencilling in 0.4pc growth in GDP this year, down from its previous forecast of 0.6pc. The forecast for next year has dropped from 1.9pc to 1.5pc.
While the impact on Ireland's overall debt position will be "modest'', it means that spending cuts and tax rises of up to €4bn are now on the cards.
However, anything beyond this figure is now unlikely, as the IMF has cautioned against being too ambitious in Budget 2012.
"You need to strike a balance,'' said Craig Beaumont, the IMF's mission chief to Ireland. He warned that too many cuts and tax rises would have a dampening effect on growth.
Mr Beaumont was speaking from Washington as the IMF revealed its third review of Ireland's bailout plan.
The organisation said it was "very pleased and very impressed'' by Ireland's performance so far this year, adding that the downgrades to growth were solely the result of external factors.
"A global slowdown is expected to dampen the pace of recovery in Ireland," it said. "The growth outlook for key trading partners -- the euro area, the US and the UK -- has worsened substantially.
"Staff have therefore lowered projections for growth in demand for Irish exports, especially in 2012," it added.
Mr Noonan received a boost from the organisation's comments on mortgage debt. While there has been a public clamour for a sweeping mortgage debt-forgiveness plan, Mr Beaumont said the Government here had already taken "helpful steps" by introducing a code of conduct on mortgage arrears and that the best approach now was "case by case".
"We share the views of Mr Noonan and Mr Honohan," said Mr Beaumont. The report also made it clear that Ireland was planning to introduce changes to personal-insolvency rules, allowing some borrowers to restructure their debts.
Overall, the IMF is very upbeat about recovery here, but Mr Beaumont said that while
bond spreads were declining to reflect this, further progress was needed. He said stresses in the wider eurozone were one of the reasons that bond yields had not fallen further for Ireland.
Asked if Europe could do more to help Ireland, Mr Beaumont said simply that it was time for the deal agreed in Brussels on July 21 to be implemented.
In relation to specific targets, the IMF said: "Strong implementation of the programme has continued, with fiscal consolidation on track to meet the 2011 targets and all end-June and continuous-performance criteria and indicative targets achieved.''
The progress on banking was also praised, although the report noted that ECB dependence remained high.
The agreement on July 21 to cut Ireland's interest rate was also highlighted.
The IMF noted: "Recent announcements to strengthen European support to Ireland, including through lower interest rate and longer maturity financing, will help improve debt and debt-service outlooks."