Wednesday 13 November 2019

We're on course for targets - Central Bank

Thomas Molloy

THE country will reach a European Union target of achieving a structural budget deficit of 0.5pc of economic output in 2020, according to a research paper published by the Central Bank yesterday.

The paper looks at the chances of Ireland meeting the targets agreed under the fiscal compact, which was passed in a referendum earlier this year and is due to come into force across the eurozone in the coming months.

The fiscal compact calls for countries to run a so-called structural budget deficit that is more than 0.5pc of gross domestic product.

A structural budget deficit is different to a budget deficit because it tries to measure taxes that are sustainable rather than one-off payments.

The fiscal compact rules are "relatively more binding in the Irish context than the debt rule", which was also agreed in the recent referendum and requires debt in excess of 60pc of GDP to be reduced at an average one-20th per year, according to the paper by Laura Weymes and Colin Bermingham, economists at the Dublin-based bank.

Balance

Ireland would need an annual 3.6pc primary budget balance, which excludes debt interest payments, between 2016 and 2020, to reach the structural budget target, the researchers said.

The economists expect that Ireland will be in compliance with the debt rule before it is expected to come into force in 2019.

While the Central Bank researchers appear to believe that the country will reach its targets, they used new tools to emphasise that there is considerable risk attached to their forecasts because of "the high degree of uncertainty surrounding future economic growth out-turns".

The modelling techniques use official government forecasts for growth; but any slackening of growth could leave the country struggling to meet the targets.

The Government says the debt-to-GDP ratio will peak next year at around 120pc, but yesterday's paper said higher-than-expected growth could push it down to 95pc while slower-than-expected growth could push it up to 140pc.

Irish Independent

Also in Business