35 Things the IMF is Saying About Ireland

The IMF yesterday published its 8th of 12 quarterly reviews of Ireland’s bailout program. This is what they had to say:

1. We continue to meet our headline targets.
2. Regaining sustained access to sovereign bond markets, and successful graduation from the bailout, requires an EU deal on Ireland’s bank debt burden.
3. Net exports are the key growth driver, but their rate of increase has slowed. Overall, growth appears to be slowing in Q4 2012.
4. Domestic demand will contract in 2013 before returning to growth in 2014 as private consumption becomes a net positive. Government austerity means ‘fiscal drag’ will continue until at least 2015.
5. Real GDP growth would reach almost 4% by 2015 if it were not for government tax hikes and spending cuts.
6. These growth forecasts face significant downside risks, particularly if growth in our trading partners undermines growth in net exports. Threats also arise from a sub-par financial sector, public and private sector debt overhangs, and further potential bank bailouts.
7. The government should not impose more austerity measures than currently planned to meet deficit targets before 2015 should growth disappoint… so as to maintain political ‘feasibility and credibility’.
8. Ireland’s ‘fiscal multiplier’ is likely higher than usual because of constrained credit conditions.
9. Unemployment would stand at 20% if it wasn’t for emigration and declining participation in the labour force.
10. The rate at which mortgages are falling into arrears is falling, but those already in arrears are falling further behind.
11. De-leveraging of the banking sector continues (EUR 50bn fall in borrowings since December 2010), exacerbating credit constraints faced by SMEs.
12. Higher unemployment is driving the government over-spend in health, but higher-than-expected unemployment is behind the welfare over-spend.
13. Health savings can be made by reducing the pay bill (overtime and premium payments), using more generic drugs, recouping more money from private patients using public hospitals, and tightening access to medical cards.
14. Austerity measures of some 6% of GDP over the 2011-2012 period have only reduced the budget deficit by 3% of GDP.
15. The tax/spend split in austerity measures over the 2013-2015 period will be 40/60.
16. Reforms to tax reliefs on pension contributions and the introduction of a university fees loan scheme are suggested as future fiscal consolidation measures.
17. Public sector pay is – all else equal – higher than private sector pay, particularly for low earners, but the gap has narrowed since 2007 due to the average 13.5% reduction in public pay. Irish public pay is among the highest in the OECD, particularly for teachers and health professionals.
18. Some of the public sector pay premium can be attributed to better gender pay equality in the public sector, which is made up of 2/3 female employees.
19. The banking sector, as a whole, has moved into the red in 2012, having broken even in 2011. Future measures to boost profitability and improve asset quality are to be expected.
20. Measures are recommended to make house repossessions easier.
21. More lay-offs than the planned 6,000 by end 2015 are recommended.
22. The NTMA plans to build a ‘war chest’  / ‘cash buffer’ of some EUR 19bn by end 2013, roughly one year’s financing needs, to smooth re-entry to sovereign bond markets. This cash buffer will be run down over a number of years, closing the gap between gross and net government debt.
23. Across a range of competitiveness indicators, Ireland is improving its position vis-a-vis European averages, yet its share of world exports continues to decline (having held up strongly amid sharp trade volatility in 2009).
24. 2/5 of the 11% of GDP improvement in the primary budget balance over the 2010-2015 period has been achieved by end 2012.
25. Taxes are going down… really! As a proportion of GDP, tax revenue was 35.2% in 2008. Although a slight increase to 34.8% is expected in 2013, a steady decline to 34% is expected by 2017.
26. Government spending is collapsing, from a 2009 peak (excluding bank bailout costs) of 45% of GDP to an expected 35.5% in 2017.
27. 3/5 of the increase in Ireland’s national debt since 2007 comes as a direct result of bank bailouts.
28. Ireland will achieve a structural primary balance in 2013. This means that if economic growth was in line with historical trends, tax revenue would cover all expenditures bar debt servicing.
29. At 18.3% of GDP, the private sector savings rate is expected to remain elevated in 2013. Given that the government continues to run a sizable deficit, the overall savings rate will be 12.5%. As the decline in government dis-saving outweighs the decline in private sector saving, the overall savings rate is expected to be approaching 15% by 2017.
30. Wages started growing again in 2012 for the first time since 2008 and are expected to grow even faster – although still less than 1% – in 2013.
31. The unemployment rate will still be 12.5% in 2016, the latest possible date for the next general election, but is expected to be declining relatively rapidly by then.
32. According to current projections for growth (which come with a health warning) and government budgets, net general government debt looks set to fall below 100% of GDP in 2018, even in the absence of asset disposals or an EU deal on the bank debt burden, while gross GGD (which is the ‘headline’ number) will fall below 100% of GDP in 2021.
33. If growth were to remain at circa 0.5% of GDP, GGD would be over 140% by 2021, giving a good indication of its sensitivity to growth forecasts. It is less sensitive, however, to changes in sovereign borrowing rates, not least because of the amount of the outstanding debt constituted by relatively low, fixed-rate official funding.
34. Ireland’s current account is expected to hit 3.1% in 2013, a remarkable 8.8% swing from -5.7% in 2008. It is forecast to hit 4% by 2015 and remain relatively steady thereafter.
35. Ireland’s Net International Investment Position has deteriorated from -5% of GDP in 2006 to -94% in Q2 2012. In 2009, Ireland’s stocks of outward FDI surpassed stocks of inward FDI, the net difference having now reached 30% of GDP (these numbers are subject to currency volatility and revaluation effects in addition to capital flows).