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Ireland Remains On Track, Challenges Remain: Troika

4/26/2012 10:21 AM ET

Ireland's policy implementation remains on track, but considerable challenges remain, a review mission from the European Commission, the European Central Bank and the International Monetary Fund said in a statement on Thursday.

The sixth quarterly review of the Irish government's economic program by the staff teams of three aid donors, who are together known as the troika, was held between April 17 and 26.

With strong program implementation, the country met its 2011 fiscal targets with a healthy margin and the consolidation continued in the first quarter of 2012, the troika said. Ireland received a EUR 85 billion EU/IMF bailout in December 2010.

The group also noted that efforts are also adopted to restore the health of the Irish financial sector, which it said was critical to help a recovery in domestic demand. Some improvement was cited in market confidence though bond spreads remain elevated despite some stabilization.

The troika also took note of the government's advancement in its jobs and growth agenda and stressed that progress in this area is essential to reduce the high level of unemployment.

The country's fiscal consolidation efforts remain on track in 2012, the troika said. The 2011 general government deficit, excluding bank support costs, was estimated at 9.4 percent of GDP, which is well within 10.6 percent target of the bailout plan.

Citing the Irish authorities' prudent budget design and implementation, the troika said, "The budget is on track for achieving the 2012 deficit ceiling of 8.6 percent of GDP."

However, the troika sees Ireland's economic growth to be modest this year, at around 0.5 percent. "The benefits of continued competitiveness gains are limited by relatively low trading partner growth, while domestic demand continues to decline and the banking sector faces difficult market funding conditions," the group said.

"Strong policy efforts by the Irish authorities, together with the support of Ireland's partners, will be needed to achieve the goals of the program in these challenging circumstances."

Following the approval of the latest review by the relevant EU bodies and the IMF Executive Board, an aid disbursement of EUR 2.3 billion by the EU and EUR 1.4 billion by the IMF will be made available. The next troika review is scheduled for July.

"There remains a challenging road ahead but we remain fully committed to reducing our deficit to 3% of GDP by 2015 and we are confident that the 8.6% target for 2012 will be met," Ireland's Finance Minister Michael Noonan and Public Expenditure and Reform Minister Brendan Howlin said in a joint statement.

"This Government is focused on creating jobs and restoring Ireland's economic sovereignty; the successful implementation of the programme as well as endorsing the upcoming stability referendum will put us on this path."

The euro area member is set to hold a referendum on May 31 on the European fiscal compact treaty that seeks stricter budget rules. The deal was agreed by EU leaders in February. Even if Ireland rejects the deal, it would come into effect once 12 Eurozone states approve it.

While the government hopes for a 'yes' vote, the public sentiment against austerity raises concern. The country has rejected some EU treaties in the past, but a rejection this time could jeopardize further EU-backed financial aid via the bailout fund, the European Stability Mechanism. That could derail a possible economic recovery in Ireland.

by RTT Staff Writer

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