Thursday 24 October 2019

Growing size of international funds poses economic risk here, warns IMF

Wary: Erik de Vrijer of the IMF warned about corporation tax increases. Photo: AFP/Getty Images
Wary: Erik de Vrijer of the IMF warned about corporation tax increases. Photo: AFP/Getty Images

David Chance

The IMF has warned a surge in the size of the offshore funds industry here could create new risks for the real economy, including the knock-on effect on the property market.

These offshore funds have surged to €3tn from just €700bn in 2007. While most of their activities relate to the international economy, they are growing their footprint in the domestic financial sector.

This includes property where so-called cuckoo and vulture funds are increasingly active.

"The overall size of the Irish financial sector is now significantly larger than it was before the crisis. Banks have deleveraged... focusing more on the domestic market, but this non-bank financial sector increased exponentially," said Erik de Vrijer, assistant director of the IMF's European Department.

Mr de Vrijer said while links are small, funds are invested in property here and the purchase of non-performing loans from financial institutions.

In addition, some domestic banks are reliant on these funds for investment, he said.

"While the non-bank financial sector in Ireland would mostly be a conduit of global financial shocks, links to the domestic economy are non-trivial and growing," the IMF warned after its annual review of Ireland's economy.

The IMF urged the Government and Central Bank to take a closer look at the sector, the growth of which has propelled Ireland to become the fourth largest shadow banking sector in the world.

It also called for a plan to prepare for changes to the company tax environment, which could hit Government revenues hard.

Mr de Vrijer warned about letting the "strong increase in corporation taxes beguile you" that it was permanent.

Irish Independent

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