IMF backs Michael Noonan’s bid for Irish budget flexibility
Government efforts to convince the European Commission to allow greater flexibility in putting together the next budget have been handed significant backing from the IMF.
It rowed in behind Finance Minister Michael Noonan’s claims that further flexibility should be afforded to Ireland as the EU’s budgetary rules begin to apply to the country from the next budget onwards, following the bailout exit.
Earlier this month, Mr Noonan said he was committed to adhering to EU rules but did not want to be derided by his electorate and was asking the commission for room to manoeuvre in the application of the rules.
In its first review of the Irish economy since the bailout exit, the IMF said it “welcomes ongoing work by the Irish authorities to refine some aspects of the European Commission methodology”.
Actions to contain public wage increases and to broaden the tax base were also recommended in the review.
With the Haddington Road agreement set to expire next year, future development on public-sector wage agreements must recognise the tight fiscal constraints in coming years, according to the IMF.
Further efforts to broaden the tax base — including in terms of Vat and maintaining updated housing valuations to protect revenue from the property tax — are also encouraged to reduce Ireland’s vulnerability to a crisis.
The mortgage arrears crisis also features prominently in the Article IV Consultation released yesterday, with cases of prolonged loan arrears requiring more vigorous action.
The share of primary dwelling mortgages in arrears of over 90 days declined to 14.8% in the last quarter of last year from a peak of 17.3% more than a year earlier but those in arrears of 720 days or more increased.
Among the tactics recommended for consideration to deal with the arrears issue are hastening repossession proceedings to “engage borrowers on lasting restructures where possible”; and further use of the personal insolvency system, including bankruptcy.
The Central Bank’s intervention in the housing market was also lauded by IMF directors who welcomed the mortgage lending caps but, against the backdrop of rapidly rising commercial property prices, encouraged close supervision coupled with proactive use of macro-prudential tools to ensure that bank exposures are appropriately contained.
IMF predictions put the economy on a growth trajectory of 3.5% this year, bolstered by the ECB’s €1.1 trillion quantitative easing programme launched earlier this month.
A budget deficit of 2.7% of GDP – comfortably below the EU’s 3% limit – is also forecast for 2015 assuming Eurostat don’t classify Irish Water as a government entity which would add 0.3% to the deficit.
“The Government is fully aware of the importance of sound budgetary policy in the years ahead, and is committed to a steady adjustment path in reducing debt and maintaining stability. I welcome in particular the Executive Board’s support for the macro-prudential measures introduced recently and also for the full implementation of Construction 2020,” Mr Noonan added.
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