Business Irish

Thursday 27 October 2016

Public sector wage increases should be gradual, says IMF

Published 23/06/2015 | 02:30

IMF Managing Director Christine Lagarde
IMF Managing Director Christine Lagarde

Public sector wage increases should be gradual and efficiency gains should continue, the International Monetary Fund (IMF) has signalled.

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And the global lender said the Government should be doing more to reduce the deficit further next year given the still-high levels of public debt, and strong economic growth.

In its latest assessment of the Irish economy, the Washington-based body said demographic pressures could pose budgetary challenges over the coming years.

"Measures to raise revenues should be considered to support adjustment in the face of these pressures and it is critical that any unwinding of savings in public sector wages be gradual and that efficiency gains continue," the IMF report said.

In May, the Government clinched agreement on a pay deal to replace the Haddington Road agreement.

The Lansdowne Road Agreement will kick off the phasing out of the deeply unpopular pension levy, as well as introducing modest pay hikes for low-income workers over the coming years.

The IMF also said that developments in Greece remain one of the most prominent risks for Ireland, although it noted the country has limited direct exposure to Greece and the Government's cash position provides a sizeable buffer.

The body said the deficit this year is likely to come in well below budget again this year, and said any past spending overruns should be avoided.

It said the "economic rebound is in full swing", but cautioned that the Government must remain prudent.

"Fiscal policy should make solid progress toward balance in the favourable economic environment and the limited fiscal space in coming years should be used to support durable growth," it said.

"The authorities' target for a deficit of 1.7pc of GDP in 2016 would imply fiscal adjustment that is too modest given Ireland's high public debt and strong growth.

"Hence it is essential that a likely out-performance of revenues be saved in order to avoid delaying adjustment to a period when growth may well be weaker."

The IMF said that while the health of the banks has improved, more progress on profitability is needed and efforts to tackle the mortgage arrears situation should be intensified.

The body said legal proceedings must be made more efficient and more use must be made of the personal insolvency regime.

The IMF projected the economy will grow by 4pc this year and 3.3pc next year. Unemployment, it said, will dip to 9.8pc this year, falling further to 8.8pc in 2016. Domestic demand will rise to 3.2pc this year.

Irish Independent

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