Ireland : Twelfth Review Under the Extended Arrangement and Proposal for Post-Program Monitoring

KEY ISSUES Steadfast policy implementation has been maintained through the final review of the program. Budget execution has once more been solid in 2013, with the fiscal deficit expected to remain within the Excessive Deficit Procedure ceiling. Budget 2014 targets a balanced adjustment path, with a primary balance in 2014 and an overall deficit below 3 percent of GDP in 2015. Efforts continue to address the high level of nonperforming residential mortgages and SME loans and key bank diagnostics have been completed. Ireland has pulled back from a severe banking crisis with the support of the EU-IMF arrangements and broader European initiatives. Though below initial projections, growth has exceeded the euro area average and indicators suggest a recovery may be emerging. Banking reforms have supported financial stability. While the crisis and bank support led to a substantial rise in the deficit and a sharp increase in public debt, phased consolidation—initiated prior to the Fund arrangement but subsequently maintained—has significantly improved the fiscal position. Market access has been regained, also benefitting from EFSF/EFSM maturity extensions, the Promissory Notes transaction, and the broader easing in euro area market tensions. Continued determined policy implementation is nonetheless needed on a range of fronts before Ireland can be judged to have fully recovered from the crisis: Steady fiscal consolidation. With the fiscal deficit still high and public debt very elevated, sizable further consolidation is needed in coming years to put debt firmly on a declining path and help ensure Ireland’s return to market financing is lasting. Addressing mortgage arrears and completing bank repairs. Very slow progress in addressing mortgage arrears hinders a revival over time in lending that is needed for domestic demand recovery to become sustained. Intensified efforts are needed to ensure banks and mortgage borrowers in arrears conclude durable solutions. Banks also need to rebuild their profitability, although, in the context of low ECB policy rates, they face challenges from the structure of their assets. Reducing high unemployment. Efforts to improve employment services should continue, especially for the long-term unemployed, to ensure that they remain in the workforce and acquire marketable skills. After wide consultation, the Irish authorities have decided to not seek a financing backstop after the conclusion of their current EU-IMF arrangements. Ir ...