Wednesday 21 March 2018

State hitting targets but troika warns on jobs and spending

Finance Minister Michael Noonan and Public Expenditure and Reform Minister Brendan Howlin at a press briefing yesterday at Government buildings on the 7th troika review.
Finance Minister Michael Noonan and Public Expenditure and Reform Minister Brendan Howlin at a press briefing yesterday at Government buildings on the 7th troika review.

Donal O'Donovan, Brendan Keenan and Peter Flanagan

Bank burden and health budget must be tackled, officials say

SLASHING the damaging bank debt burden, tackling the health budget and rampant unemployment all emerged as critical concerns as officials from the EU and IMF wrapped up their seventh mission to monitor progress under the Irish bailout programme yesterday.

Ireland is meeting 120 out of 120 conditions laid down by international rescue funds from the troika of the European Union, the IMF and the European Central Bank (ECB), officials confirmed, but the situation remains challenging.

The mission that ended yesterday marks the halfway mark in the EU/IMF bailout.

Rampant unemployment and overspending by the Department of Health were named as particular concerns by the so-called IMF-EU-ECB troika in a statement marking the end of their mission.

The officials also warn that stressed household budgets mean we can expect modest growth in the year ahead.

Real test

Finance Minister Michael Noonan said the real test of the programme's success is whether Ireland can return to borrowing in the bond markets, and ultimately emerge from the rescue.

Such a return to the markets will be difficult because the national debt will peak at almost 120pc of Gross Domestic Product (GDP) next year, Minister Noonan said at a press conference in Dublin yesterday

"We can sustain debt at that level but it's like driving with the handbrake on," he said.

The minister is pressing for the debt burden to be cut radically by breaking the link between the national debt and the cost of the banking rescue.

Talks on such a deal are now under way between the Department of Finance and the troika.

The most radical option being considered is to sell stakes in state-owned banks to the European rescue funds. Cash raised could be used to slash the national debt.

A second option is to ease the repayment terms on the €30bn Anglo Irish Bank rescue, while a third option being considered is to shift tracker mortgages off the balance sheets of state-owned banks, making the lenders more valuable.

A deal on the bank debt is due to be agreed by the end of September, but final implementation could be delayed because a euro area banking supervision scheme will have to be in place before any money changes hands.

In a less-positive development, the troika is understood to have asked for an investigation to look at government spending over-runs, particularly in the health budget.

A key concern is delays in negotiating better prices for generic drugs -- especially as pharmaceuticals is Ireland's biggest industry.

"If costs are higher because there are more unemployed on medical cards, that is one thing; but if agreed measures are not being taken, it is another," a source close to the process said.

The Government has pledged to have the health budget back on course by the end of the year, but ministers are being warned that experience in other countries shows that, if background costs are not brought into line, it will lead to cuts in frontline services.

Unemployment, meanwhile, remains the big brake on domestic spending.

Troika officials named a spending programme on education, transport and healthcare to be funded by the European Investment Bank as one potential boost to employment.

Public Expenditure Minister Brendan Howlin said half of any money raised from the sale of parts of Bord Gais and the ESB have been earmarked for jobs-focused investment and added that he plans to test the market for those sales next year.

Irish Independent

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