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IMF says growth forecasts are too optimistic

FURTHER Budget cuts may be needed because economic growth is unlikely to match ambitious government forecasts, the IMF suggests.

Under Finance Minister Brian Lenihan's plans at least €7bn is needed in cuts and tax rises over the next four years -- which means more than half the total correction has already been achieved. But the Department of Finance bases this on forecasts that the economy will grow by a cumulative 16pc in real terms over those years.

The IMF sees a "clear possibility" that growth will turn out to be less, and that further action will be needed to stay on target. It urges the Government to take these tougher measures if necessary, while acknowledging the risk of growing social tensions if it does so.

"Staying on target is critical to retain the hard-earned credibility. But the risk of 'consolidation fatigue' and, hence, a fraying of the necessary social cohesion, cannot be ruled out," it says.

"To try to prevent this, the Government should be more specific on the measures proposed to make the additional corrections to the public finances.

"Sustainable expenditure savings will be central, including efficiencies in public services. Broadening the tax base for revenue enhancement will also be necessary."

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