IMF Completes Ninth Review Under the Extended Fund Facility with Ireland and Approves €0.97 Billion Disbursement

The Executive Board of the International Monetary Fund (IMF) today completed the ninth review of Ireland’s performance under an economic program supported by a three-year, €22.61 billion arrangement under the Extended Fund Facility (EFF), or the equivalent of about 1,548 percent of Ireland’s IMF quota. The completion of the review enables the disbursement of an amount equivalent to about €0.97 billion, bringing total disbursements under the EFF to about €20.18 billion.

The arrangement for Ireland, approved on December 16, 2010 (see Press Release No. 10/496), is part of a financing package amounting to €85 billion (about US$110.06 billion), also supported by the European Financial Stabilisation Mechanism and European Financial Stability Facility, bilateral loans from Denmark, Sweden, and the United Kingdom, and Ireland’s own contributions.

Ireland’s strong policy implementation has continued and positive signs are emerging. Real GDP growth was 0.9 percent in 2012, and employment rose slightly over the year, although unemployment remains high at 14.2 percent. Further deepening its market access, Ireland issued €5 billion of 10 year bonds at 4.15 percent in March.

The 2012 fiscal deficit of 7¾ percent of GDP was well within the 8.6 percent target. In 2013, the fiscal deficit is projected at 6¾ percent of GDP, moving toward the target of below 3 percent by 2015. Public debt is expected to peak at 122½  percent of GDP this year and decline in later years provided growth picks up from the 1 percent rate projected in 2013.

Financial sector reforms have continued to advance, but banks remain weighed down by nonperforming loans at about 25 percent of total loans. The Irish authorities have therefore established targets for banks to durably resolve distressed mortgages, with banks required to propose sustainable solutions to 50 percent of distressed mortgage accounts by end-2013.

Following the Executive Board’s discussion, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said:

“The Irish authorities have pursued steadfast policy implementation for more than two years and positive results are emerging. Recent economic indicators suggest a nascent revival of domestic demand, Irish bond yields have fallen to pre-program levels, and the government’s market access has deepened, as seen in the successful issuance of 10-year bonds.

“Nonetheless, problem loans remain high and accelerating their resolution is a key to economic recovery. The recent establishment of mortgage loan restructuring targets for banks is therefore welcome, and it will be supported by reforms announced by authorities that facilitate constructive engagement between banks and borrowers, promote the efficiency of repossession procedures as a last resort, provide banks with the right incentives through provisioning rules, and by sound implementation of the personal insolvency reform. Progress with resolution efforts for SME loans is also a priority.

“Building on the strong budget outturn for 2012, sound budget execution remains critical in 2013, including continued vigilance on health spending and a successful introduction of the property tax. The fiscal consolidation path in coming years should be reviewed at the time of Budget 2014 to ensure that medium-term consolidation targets are achieved in a growth-friendly manner.

“Prospects for Ireland’s exit from official support have improved, yet continued strong policy implementation remains paramount given risks to medium-term growth and debt sustainability. Timely and forceful delivery on European pledges to improve program sustainability, especially by breaking the vicious circle between the banks and the Irish sovereign, would go a long way toward Ireland’s durable exit from drawing on official support.”