IMF Fourth Review

The fourth review of the Extended Arrangement  for Ireland can be read here.  This is the updated IMF projection of the general government gross debt up to 2016.

In the third review the IMF had set a target of €7.4 billion for the primary exchequer deficit in June 2012.  This target has now been revised to €9.0 billion. 

The target this year had been €10.1 billion and the June 2011 outturn for the primary exchequer deficit was €8.4 billion.  We can have a €0.6 billion deterioration in the primary exchequer deficit in the first six months of next year and still meet the IMF’s target.

42 thoughts on “IMF Fourth Review”

  1. Again little mention of the original agressive bank deleveraging demanded as top concern by the (then) hysterical ECB. The same said ECB who caused the bailout by triggering a bank run. The ECB has been neither competent, nor politically neutral during this crisis. Their opaque and unwieldy governance structure is not fit for purpose – with no clarity as to who makes the decisions (let alone why) and worse still all sorts of solo runs from Executive and Governing Council members.

    Obviously it is not in Ireland’s interests to point out that we are ignoring the hysterical ECB demands – but someone needs to radically reform this unprofessional, incompetent and undemocratic organisation.

  2. Seamus
    The debt figure is expected to be ~200 billion in 2015?
    The GDP is currently ~160billion and stagnant.
    What cumulative growth % would we need to have to get to the green dashed line above of ~112% in 2015?.
    These figures don’t seem to be readily available in the document you link to.

  3. @ Joseph,

    Here are the nominal GDP, gross General Government Debt (both in €billions) and debt ratios (% of GDP) up to 2016.

    2011: 156.1 164.8 105.6
    2012: 159.1 180.9 113.7
    2013: 164.8 194.6 118.1
    2014: 171.7 201.9 117.6
    2015: 179.8 206.2 114.7
    2016: 188.8 209.7 110.9

    Here are the real GDP growth rates and GDP deflators and nominal GDP growth rates (all in %) for the same period.

    2011: 1.1 -1.0 0.0
    2012: 1.0 0.9 1.9
    2013: 2.3 1.3 3.6
    2014: 2.7 1.4 4.2
    2015: 3.0 1.7 4.7
    2016: 3.3 1.7 5.0

    The projection is that there will be 10.5% cumulative real GDP growth from 2011 to 2015. Nominal growth is forecast to be 15.2%.

  4. Year 2003 : Imports of oil by Price : 1.593 Billion Euros
    Year 2003 : Imports of oil by Mass : 7994 KTOE

    Year 2010 : Imports of oil by Price : 4.258 Billion Euros
    Year 2010 : Imports of oil by Mass : 7373 KTOE

    So we imported 621 less KTOE but paid 2.665 Billion Euros more

    Imagine how much we would we be paying if we had 2007 like activity of 9047KTOE ?
    Imports of Oil for 2011 are likely to be closer to 7000 KTOE given the decline in the third quarter GNP.

    The situation for Nat Gas is even worse given the decline of Kinsale and the crazy dash for gas in our electricity sector.

    Year 2003 : Imports of NG by Price : 225 million Euros
    Year 2010 : Imports of NG by Price : 1.134 Billion Euros

    The IMF ain’t no good cop.
    Our Masters are devaluing the Euro against the $ rather then Gold recently.
    Need I say oil is priced in $$s.
    This means the US can continue to compete against the world despite its huge trade defecit.
    The Imperium is clearly in trouble – it needs to strip the Euro periphery to sustain itself.
    Our “growth” was artifical on the way up and artificial on the way down.

    The IMFs boys have form – they only know how to strip , not to create.
    They started these adventures in the 60s with the UK, not in the 70s as commonly belived – (their 1960s policey recommendations created the 70s UK failure)
    Any policey recommendation that builds capital intensive core investment at the expense of todays consumption is pase as this reduces bankers profitability which relies on taking money from the future.
    When their policey recommendations fail as they always do that is when they want other peoples consumption reduced to peserve their fiefdoms as is happening in Ireland now.

    It is all so preditable & yet so old
    Begins at 6.00 – ends 7.35
    http://www.youtube.com/watch?v=qMMU6_CjQtQ

  5. Is the IMF credible ?
    The noises it was making was cryptic , hushed & in some instances plain wrong, but most of all far too late.

    It takes many decades to plan a economy and sometimes years to destroy it.

    Ireland economy always has had its ass hanging out there – waiting for the next global shock , with little real internal investments to buffer it from the 4 winds.

    We are just stupid I guess.
    http://www.rte.ie/news/av/2005/1018/cowenb_av2083678.html

  6. 2011: 156.1 164.8 105.6
    2012: 159.1 180.9 113.7
    2013: 164.8 194.6 118.1
    2014: 171.7 201.9 117.6
    2015: 179.8 206.2 114.7
    2016: 188.8 209.7 110.9

    …..

    The projection is that there will be 10.5% cumulative real GDP growth from 2011 to 2015. Nominal growth is forecast to be 15.2%.

    My opinion is that these figures hopelessly optimistic. There is no way this country is getting back to 2004-05 GDP levels by 2016. It took 5 years of a a housing bubble to get us to that level in the first place, and that was without an ongoing recession.

    2016: 188.8 209.7 110.9

    The Debt/GDP ratio is more sensitive to changes in the denominator. If GDP in 2016 is only €170 bn, then debt/GDP will be 123%; If GDP is €160 bn the ratio will be 131%. As the debt gets bigger, GDP has to work harder to keep the debt ratio smaller.

    With this in mind, let’s compare the current prediction with the previous one

    |GDP | Debt| Ratio |
    ----------------------
    |183.0 | 203.6| 111.2% |(previous prediction)
    |188.8 | 209.7| 111.0% |(current prediction)

    In short, the IMF has managed to keep its ratio prediction down only by revising GDP growth upwards to match. And this after its own predictions for growth this year have so spectacularly failed to be met. I don’t see how these figures can be justified.

    Based on the above, I predict that in 2016, Ireland’s GDP ratio will be above 125%, and that the country will then enter a second IMF program.

  7. @OMF

    “My opinion is that these figures hopelessly optimistic” etc.

    I was going to say something similar but you have done a better job of articulating it in your post. So +1 and amen to that.

  8. Urban legend or Victorian era amateur science or a combination of both as it might be, this is another example of the ‘boiling frog’ syndrome. The Government is hoping against hope that this fiscal salami slicing, if done at a slow and measured pace, will not provoke an explosion of wrath from the populace. It is clear that the IMF staff are not entirely happy with this because they know that this path will lead to stagnation and relative decline.

    And, together with the Irish politicians and officials with whom they are dealing, they are of one voice pleading with the EU and the ECB to provide Ireland with some fiscal relief of the excessive bank resolution burden it is carrying. There is so much focus on Anglo, promissory notes and ELA that little attention is paid to the huge fiscal ‘investment’ Ireland

  9. Apologies..continues..

    has made in the ‘Two Pillars”. The IMF, quite rightly imo, focuses on the potential to re-finance this from external sources and to create some ‘fiscal space’.

    But that is all that seems to be on offer. It appears that the IMF (and probably the European Commission and the ECB) has accepted the Government’s argument that it might, just might, be able to keep the lid on public discontent while it pursues this fiscal salami slicing, but that any meaningful, and unambiguously beneficial, structural reforms are simply out of the question as they would provoke the wrath of powerful and influential (and deeply-embedded) vested interests and this could be the trigger for widespread popular discontent and conflict between various sectional economic interests. And this, of course, could abort the fiscal salami-slicing process, so any reforms of governance or structural refroms will be reduced to window-dressing or the familiar optical illusions. .

    All entirely predictable, but it presents a bleak prospect. Those with the power and influence to protect their relative position will do so; those without such power and influence will have to shift for themselves. We’ve been here before – in the ’30s, the ’50s and the ’80s and now the ’10s. And each time almost entirely self-inflicted; yet it is proving impossible to break the cycle. This time I thought it might have been possible, but I was so wrong.

  10. @ OMF

    I think that you are correct. The question then is; how is falling into a second programme to be avoided, a situation which would be a defeat not just for Ireland but for the entire approach to halting the euro crisis?

    It seems to me that the answer will be (i) real austerity as opposed to the current cosmetic form of it i.e. further matching reductions in social welfare and pay and pensions cost of the public sector (ii) the additional assistance referred to by the IMF.

    As tha Tánaiste has pointed out, the negotiations with regard to the latter are separate from those relating to the IAREU but it would be naive in the extreme to imagine that the two are not linked.

    We cannot play on both the Boston and the Berlin pitch at the same time. That is the essence of the debate. A radical change in approach to the conduct of economic and social policy towards the latter philosophy is what is required. This cannot be reduced, as it almost certainly will be, to a shock horror reaction on the supposed threat to our cherished low level of corporation tax.

    It is interesting in this context to hear Regling refer to the €30 billion sweeteners in the second Greek bail-out context (Al Jazeera).

  11. @ Paul Hunt

    The next year, even the next few months, will show whether your pessimism is justified. I do not share it.

  12. From the IMF report:

    “Staff welcome the authorities’ focus on base-broadening, and consider that such further broadening will likely need to encompass income tax bands and credits.”

  13. @DOCM,

    It is not pessimism; it is an informed despondency. Ireland is simply a small regional economy; the supply of labour will adjust eventually to secure some sort of internal balance. The recovery will be slow and painful – and much more slow and painful than it need be, as there is no desire to undertake the internal structural reforms that would counteract the generally unfavourable external factors and break this largely self-inflicted cycle of boom and bust. But on the other hand the recovery process is subject to official external direction and support. It’ll be a long haul. As usual the comfortable won’t be afflicted very much; and the afflicted will be compelled/encouraged to reduce their demand on public resources by dying a little sooner or leaving. It was ever thus.

    On the EU front it is likely to be touch and go while Sarkozy and Merkel conflate their respective national interests (and in a bogus manner the interest of Europe) with their desires to be re-elected. The hope against hope is that most bond market participants will refrain from creating total mayhem and cut the politicians some slack while they try to engage with their previously neglected voters.

    Don’t worry. We’ll all muddle through. It’s simply frustrating that it will be so slow and painful for these least resourced and equipped to cope – and that the seeds of the next crisis, inevitably, will be sown.

  14. *ECB AWARDS EU489 BLN IN THREE-YEAR LOANS VS EST EU293 BLN
    *ECB ALLOTS EU 29.7BLN IN 98 DAY REFINANCING TENDER

    Bang. QE by stealth.

  15. @ Paul Hunt

    I had not heard the news about bringing forward the date for the introduction of a property tax when I posted above. It brings the Boston versus Berlin argument back with a bang.

    We are not going to be allowed to muddle through on this occasion. Those providing the money to enable our pusillanimous and incompetent politicians to negotiate a way through the mess we have managed to create for ourselves will not fund it. And for a simple reason. If the Irish taxpayer refuses to put up the money to maintain an inequitable and dysfunctional system of government, why should their taxpayers be asked to do so?

  16. @BEB

    Would there have been a need to recpitalise the Irish banks, particularly AIB, if all this ECB money (QE light or whatever) had been freely available back then and the Irish banks had managed to hide their ‘liquidity’ problems a little better as one suspects many European banks have done?

  17. @Seamus

    Thanks for those figures. They are instructive and helpful.
    As you may suspect I am not optimistic at this point.
    Growth is failing but so too is any semblance of tackling the internal cost structure in a fair, balanced or homogeneous way.
    As for the banks, I won’t go there. Whatever bit of rationality I have managed to retain goes straight out the window when payments to bondholders or other creditors of dead banks comes up.
    The ECB has a lot to answer for. And nothing to show for it.

  18. @DOCM,

    I suspect that those who provide official external support will remain reasonably content while the programme is being followed and no serious popular discontent arises. In the modern era, and by historical standards, the majority of Irish citizens are reasonably comfortable. The current system of governance ensures that, in straitened times, they will not be afflicted excessively. And, in so far as they are afflicted as the fiscal salami-slicing is progressed, government will do its best to ensure that the affliction is spread around, so that any narrow sectional interest able to exercise power and influence is not disproportionately afflicted compared to others. Minor, often cosmetic, reforms or adjustments will be implemented if pressure points are exposed that might trigger wider public discontent. Those at the bottom will die, subsist or leave.

    That’s just the way it is. Nor can it be expected to change, because the forces resisting change are too deeply embedded and powerful. And those who could make the case for change are either conflicted or compromised – or resign themselves to vanity projects or the propagation of optical illusions. It’s much easier, safer and rewarding to go with the flow. Ireland can be quite brutal in the way it treats those who don’t.

  19. We’re all Irish now it seems…

    *ITALIAN BANKS ISSUED ABOUT EU40 BLN STATE-BACKED BONDS
    *MONTE PASCHI ISSUED EU10 BLN STATE-BACKED BONDS FOR ECB LOANS
    *INTESA ISSUED EU12 BLN STATE-BACKED BONDS FOR ECB LOANS *UNICREDIT ISSUED EU7.5 BLN STATE-BACKED BONDS FOR ECB LOANS
    *BORSA ITALIANA GIVES ITALIAN BANK COLLATERAL DATA IN FILING

    @ Joseph

    they would have lasted longer, but it eventually would’ve become apparent they didnt have enough capital. BOI might have been able to stumble on, but not the rest.

  20. @Joesph Ryan

    The ECB has a lot to answer for. And nothing to show for it.

    Joseph, on the second point you are sadly mistaken.

    Germany and its ECB allies have managed to enforce their preferred flavour of economic planning all over Europe, German funding rates remain low, Merkel’s popularity remains high, the idiocy of universal austerity is now set to be legally enshrined in constitutions across the Eurozone and large banks are now comfortable once again. This has been a glorious success!

    The ECB policies have worked for the interest groups they represent, but as I have repeatedly mentioned success for the mitteleuropean EPP consensus has always meant disaster for us.

    The coup of the Euro has been a success.

  21. @Bond. Eoin Bond

    “Bang. QE by stealth”

    Will we ever get to know which banks (names of) took advantage of this facility – and how much – or does that get shrouded in some kind of ‘confidentiality’ clause?

    It’s a lorra, lorra money.

  22. @ PR

    confidential, though with 523 banks taking part, it looks like everyone took a slice. However, the Italian banks have fessed up to some ELG-style shenanigans this morning.

  23. The question then is; how is falling into a second programme to be avoided, a situation which would be a defeat not just for Ireland but for the entire approach to halting the euro crisis?

    Firstly, forget the euro. The euro is not in Ireland’s interest.

    Secondly, on how to avoid falling into a second IMF program. The answer is known to everyone here:

    – Cut public sector wages and pensions. Probably 60%+ cuts at higher levels, 10-20% at lower levels.
    – Cut social welfare by at least 40%
    – Raise income taxes, introduce additional tax bands(+80% at the higher levels).
    – Cut education and health services substantially.
    – Default on all bank debts.

    And of course, for the sake of our imperiled ATMs
    – Leave the euro.

  24. Shay
    sad but true …. but we are only at the end of act 1 …. act 2 comes when ordinary joes across europe give up and walk away from their debts. ireland’s indebted serfs should have done that already but we are using the emigration valve even though that makes it worse in the medium term … other countries wont or cant get rid of their “surplus” so they willsee millions sit tight and tell the creditors to shove it. that will be where the austerity mantra will meet its natural end, because to enforce it will require force and even I can’t believe that governments will use force to protect their creditors.

    Act 2 begins in mid 2012, as far as I can guess.

  25. @Shay

    ‘Germany and its ECB allies have managed to enforce their preferred flavour of economic planning all over Europe, German funding rates remain low, Merkel’s popularity remains high, the idiocy of universal austerity is now set to be legally enshrined in constitutions across the Eurozone and large banks are now comfortable once again. This has been a glorious success!

    … and a little XMas bonus of Half a Trillion …. I hear that the board of DeutscheBank are half p1ssed this fine morning at another great escape … and it isn’t even Friday yet!

  26. It looks like the much vaunted reduced interest rate on the bail out funds may not be as large as was indicated in the summer

    “The November disbursement by the EFSF was deferred by a few days owing to exceptional market volatility, and the pricing was less favorable, at 177 basis points over German bunds, compared with 51 basis points on the issuance in June, undermining the benefit of the substantially reduced margins on EU lending.”

    Given the EFSF is having difficulty funding for longer than six months at a time we could end up paying a lot more in interest than we had thought.

  27. @all re IMF etc

    Joining them is Ireland who unfortunately have become the latest country, along with Greece , in which the IMF has had to admitted their “recovery” program is failing to meet expectations.

    Europe should consider additional support for Ireland to ensure the success of its 85 billion euros EU-IMF bailout in the face of a deepening euro zone crisis, the International Monetary Fund said on Tuesday.

    Europe’s financial woes are jeopardising Ireland’s ambition to escape its bailout straitjacket and return to market funding in 2013 and the IMF suggested a range of options to help the country’s banks and improve its appeal to private investors.

    “Deepening strains in the euro area have … increased risks to Ireland’s debt sustainability, so prospects for programme success remain fragile,” the IMF said in its latest report.

    The IMF said it and Europe had agreed to a request from Dublin to bring forward disbursements for Ireland to the first quarter of next year from the second half to help reassure investors about its liquidity given current market turbulence.
    As I have spoken about numerous times Europe’s problems are in part due to economic imbalance under a single currency. Last night’s data once again proved that point with Germany outperforming.

    The economic situation in Germany is good and there is no danger of a recession, Ifo economist Klaus Abberger told Reuters on Tuesday.

    http://www.macrobusiness.com.au/2011/12/europe-braces-for-long-winter/

  28. @Paul Hunt
    “Ireland can be quite brutal in the way it treats those who don’t……”

    Go with the flow, I presume you mean, Paul.

    I must say, I agree with most of Paul’s analysis, particularly the lengths to which “sitting” European political “leaders” (sic) and their “embedded and powerful” supporters ( including ” challenged” French banks!) are sufficiently preoccupied with remaining “sitting” that they are more willing to play populist politics with their own taxpayer/electors rather than share with them the truth about their own powerlessness.

    In a hilarious twist here in France, the salvation of this country’s uncompetitive “industrial” base ( read manufacturing of, entre autres, automobiles few people abroad want to buy) is a major new government- underwritten “Made in France” campaign. This extends to le petit Nicolas stating publicly a few days ago that, à la limite, he would prefer if people bought a Japanese car “made in France” to a French car made in Eastern Europe. (And the sky has not fallen!).

    Perversely, the feeling is that to combat globalisation, French citizens should show “solidarité” in this time of “crise” by buying French. So the campaign is NOT “Fabriqué en France” but “Made in France”. In English! Globally aware y’see.

    The malaise and morosité here are so all-pervading that taxpayer-electors have lost all sense of irony.

    There’s very little public mental space left for “concessions” to those perceived to be the cause of Europe’s trials and tribulations. Like Greece, Ireland, Italy etc.

    Shouldn’t be surprised if we don’t hear a bit more about ( Irish) “fiscal dumping” coming up to election time next year.

    Which, appropriately, would be the subject I fist chimed in on when I discovered your great site at Christmas a year ago virtually to the day!

    Bonnes fêtes!

  29. @ Hurler

    “It looks like the much vaunted reduced interest rate on the bail out funds may not be as large as was indicated in the summer…the pricing was less favorable, at 177 basis points over German bunds”

    what if the yields on Bunds had fallen by a huge amount in the same period?

  30. @Shay Begorrah
    re The ECB has a lot to answer for. And nothing to show for it.

    You are correct on your criticism. I should rephrase it.

    The ECB has a lot to answer for. Ireland has nothing to show for it.

  31. @Joseph Ryan

    The ECB has a lot to answer for. Ireland has nothing to show for it.

    They used us for a shortcut, helped by a plethora of financial capitalisms useful idiots and European technocracy’s fifth columnists embedded in the Irish government, civil service and media.

    The Euro has effectively forged solidarity between Europe’s wealthy and mobile upper classes (who collaborate) while dividing European labour (which has to complete) and marginalizing the unemployed still further. Can it be long before Europe’s now emboldened right plans a continent wide Hartz style assault on social welfare in the name of greater European coordination and competitiveness?

    Lets say it again – European banks get more generous support from the institutions of the EU than its formerly sovereign states. Unreconstructed international financial capitalism’s ultimate victory and assumption of control over the state. Great days.

  32. @Bklyn_rntr

    “even I can’t believe that governments will use force to protect their creditors”

    As a betting man…. I wouldn’t bet on it.

  33. @Mr. Bond,

    It looks like Chancellor Merkel’s Jack Lynch-like ‘soft shoe shuffle” – two steps forward, one step sideways, one step back – is paying some dividends. She has been grindingly slowly buying time, trying to keep the volatile Sarkozy on board, putting pressure on the woefully misgoverned PIIGS and encouraging her voters to step forward to peer into the abyss – even as its sides fall away and it gets closer – so that they will, how ever grudgingly, consent to her doing what needs to be done. It certainly seems to have emboldened Dr. Draghi. But it’s still only a holding operation, like the recent major central banks’ intervention. Looks like she’s playing a long game.

    @Shay,

    I know. It is dispiriting when the centre-right secures the votes and elects the governments. Silly, silly voters. Particularly when the centre-left has all the answers. It is a truly terrible state of affairs. But what’s to be done?

  34. Shay,

    As someone on the centre left, you must be really proud of the preservation of the living standards of the current public servants at the expense of a) the public services that they provide b) the lovong standards of the genera;;y less well paid funders of these services but current and future.

  35. <Really offtopic>

    @tullmcadoo

    As someone on the centre left… <You favour large salaries for senior public servants at the expense of service provision>

    Really Tull? I work in the private sector and I do not even favour high wages here, I think a minimum/maximum remuneration ratio law for businesses/professions/government departments makes far more sense than a deficit brake in a constitution.

    Now I do think that a good surgeon, engineer, scientist, social worker or teacher is of much, much more value to society (and indeed the future of humanity) than a “good” banker and I would like to see that reflected in some way in their employment conditions.

    Otherwise, incentives being what they are – (we all like incentives, don’t we?), smart and talented people might end up working in Goldman Sachs where they spend their time and energy spreading misery, concentrating wealth, destabilizing the economy and then plotting to subvert democracy in order to protect themselves from the consequences of their actions.

    As to how I was lucky enough to end up on the left on the political spectrum I have a small touch of human empathy and a reasonable understanding of probability. We take converts and our time will come again.

    </Really offtopic>

  36. @Shay Begorrah

    “smart and talented people might end up working in Goldman Sachs where they spend their time and energy spreading misery, concentrating wealth, destabilizing the economy and then plotting to subvert democracy in order to protect themselves from the consequences of their actions.”

    how about skimming 2 to 5 % on every transaction its called the get rich stay rich squeeze and squeeze and then squeeze some more

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