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Thursday 19 October 2017

IMF dismisses former expert's advice to ease up on austerity

Colm Kelpie, Fionnan Sheahan and Michael Brennan

THE International Monetary Fund (IMF) has distanced itself from comments made by its former expert on Ireland that austerity was self defeating.

The Government has also insisted it is not possible to take a "breather" from austerity.

The Coalition is currently locked in negotiations with the troika about reducing the €3.1bn adjustment target in the October Budget.

Former IMF mission chief to Ireland Ashoka Mody said the Government should consider suspending or at least lowering its planned cuts for October's Budget.

Mr Mody said the €3.1bn adjustment should be considerably lowered. He said such a strategy could lead to growth, which would do more for balancing the budget than continuing with cutbacks and tax increases.

But the IMF said there was no evidence that the Government's economic plan had been self defeating.

"Ireland's programme, supported by the EU-IMF, has steadily reduced the fiscal deficit from unsustainably high levels through a consolidation effort that is phased over five years," the IMF said.

"There has been an unavoidable drag on Ireland's growth, but other factors have also weighed on growth, including the notably worse external environment and the efforts of the private sector to reduce its high debts."

The IMF pointed out that the reduction in borrowing costs and the steps Ireland had taken to fund itself on the markets so far highlighted the credibility of the programme. And it said Mr Mody's views do not represent those of the Washington-based lender.

Mr Mody told RTE Radio's 'This Week' programme at the weekend that moving away from austerity at this point was a sensible course of action.

Mr Mody is currently a visiting professor in economics and international affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University.

Junior Minister for Finance Brian Hayes said it's not possible to take a "breather" from austerity. He said Mr Mody's approach was based on an assumption somebody else was going to help the Government bridge the €12bn annual gap between tax revenue and spending.

"There's €1bn of a deficit every single month in this economy this year," he told the RTE's 'Today with Pat Kenny' show.

"We are still borrowing significant amounts of money. The only way we are going to get back on our feet again is to make sure we get the situation under control."

The Government is currently committed to taking a further €5.1bn out of the economy over the next two years to balance the budget.

Irish Independent

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