IMF Fifth Review
This post was written by Seamus Coffey
The fifth review of the Extended Arrangement with Ireland can be read here. The debt sustainability analysis on pages 35-40 shows little changes from that provided in the Fourth Review.
The Baseline Scenario is identical and extends to a projected gross debt ratio of 109% of GDP in 2017 (net debt 101% of GDP). The growth shock shows that if annual growth is close to zero (0.1% per annum) the debt would be 138% of GDP in 2016 and still rising.
The performance criterion for the end-June 2012 Exchequer Primary Balance remains €9.0 billion. The outturn to the end-June 2011 was €8.4 billion.
Page 9 shows that we had a €4.3 billion budget last December once the full effect of tax carryover effects are included.
The budget implies a consolidation effort of €4.3 billion (2¾ percent of GDP) in 2012—including the full €1.1 billion carryover from 2011 tax measures—which significantly exceeds the €3.6 billion effort originally programmed.
Box 3 (page 20) on Social Welfare: Scope for Reform is also noteworthy. The four paragraphs in the section begin:
The Irish state provides significant support to low-income groups.
This protection has come, however, at a high fiscal cost.
Importantly, the current system generates poverty traps for some groups, while providing less targeted support to others.
Potential reform options include moving toward more a means-tested and integrated approach to social welfare payments.