Slowing euro area affecting State's fight against debt
THE IMF said Irish efforts to restore the public finances face an uphill challenge after warning that the outlook for the entire euro area worsened yesterday.
Yesterday the IMF said the economy of the euro area is set to shrink this year and warned that growth of just 0.7pc in 2013 will be less that the 0.9pc previously expected.
Fresh from a meeting with Finance Minister Michael Noonan, the IMF's mission chief in Ireland, Ajai Chopra, said it means the Government will face an even harder task next year when it comes to reining in public spending and bringing down the budget deficit to meet the target set under the bailout agreement.
"The risk is to the downside," Mr Chopra said in Dublin yesterday at the end of a regular IMF "health check" of the Irish economy.
He said Ireland had shown remarkable "ability and grit" to meet bailout targets over the past two years, but warned that the situation remains difficult.
"There is no question that the task becomes more difficult if the external environment does not improve.
"Success in Ireland will depend on the euro area stabilising and recovering," he said.
Yesterday, IMF officials warned that a raft of social benefits, including universal children's allowance, medical cards for those over 70 and social welfare payments could all be reviewed because of the high cost of universal payments that are not targeted to help the less well off.
Officials said the the cost of cuts imposed to date had been fairly spread, with the wealthiest 20pc hit with 50pc of cuts and tax hikes.
While the IMF wants Ireland to continue meeting bailout targets, it said Europe must do more to help the situation.
Yesterday, IMF officials in Washington called on the European Central Bank to cut interest rates even lower than the current 0.75pc, and called for the Central Bank to provide an economic boost through quantitative easing, the term for flooding the economy with cheap cash.
"The ECB can provide further defences against an escalation of the crisis," the IMF report said.
"These could include policies to support demand in the short run and fend off downside risks to inflation, as well as measures to ensure monetary transmission -- currently impaired by financial stress in some countries," it said.
Mr Chopra said his organisation wants to break the link between states and banks when it comes to paying for bailouts, and that it favours hitting so- called senior bondholders with losses when banks fail.
However, he refused to be drawn on the shape or size of a deal to lift the cost of the bank bailout that is due to be signed off by the end of September.
The IMF offered rare praise for implementation of the Croke Park agreement.
Craig Beaumont said the agreement had led to significant savings and at the same time protected some public services. Government plans to stimulate the economy by backing public infrastructure projects in roads, schools and primary healthcare, were also welcome, he said.
Officials said the plans will help lift the economy and add little to the cost of running the country or the national debt by using money from the European Investment Bank, the National Pension Reserve Fund, and from the sale of state assets.