IMF Report on Ireland:An International Monetary Fund (IMF)
spokesperson issued a statement today in Washington, DC on the occasion of the
publication of the IMF’s Interim Staff Report for Ireland. The Fund says that
the public response to the EU-IMF bailout program program has remained
favourable, but a lingering domestic perception of inequitable burden sharing
“The Interim Staff Report released today shows that implementation of the
authorities’ economic program supported by the Extended Fund Facility (EFF)
arrangement has been on target, with end-December 2010 structural
benchmarks and quantitative performance criteria having been met.
“Economic indicators suggest a modest export-led recovery
is under way in Ireland. In the banking sector, progress is being made towards
recapitalizing, deleveraging, resolving nonviable banks, and strengthening the
bank resolution framework. Fiscal performance has been in line with program
targets and the passage of the Finance Bill will facilitate program
implementation in 2011. The authorities have put in place robust procedures for
program implementation and monitoring.
“The first and second reviews of the program will be
combined and held at a date to be determined once the new government will be
formed. In the meantime, technical discussion will continue to assess progress
and discuss operational aspects of policy implementation to achieve the
objectives under the program.
“An IMF mission visited Dublin during January 12-21 to
conduct a scheduled interim review of economic developments and policy
implementation, as called for under the Fund’s Emergency Financing Mechanism”.
On December 6, 2010 the IMF's executive board approved a
three-year Extended Arrangement under the Extended Fund Facility (EFF) for
Ireland under the exceptional access policy and Emergency Financing Mechanism (EFM).
The arrangement provides access in an amount of SDR* 19.5bn (€22.5bn, US$30bn,
2,321.8% of Ireland’s quota) and is part of an overall financing package of
€85bn, with €45bn from the European Union and bilateral European financing and
the rest from self-financing by the Irish.
The IMF says the banking sector remains under stress.
Bank asset quality as well as real estate prices continue to deteriorate in line
with expectations, and the needed provisioning is keeping bank profits in
negative territory. Pressure from corporate deposit outflows have moderated,
however, and retail deposits continue to be relatively stable. With virtually
no access to market funding, reliance on liquidity from the Eurosystem and
Emergency Liquidity Assistance (ELA) remains heavy.
A series of top down stress tests (PCAR 2011), and bottom up
diagnostic asset valuations on a bank-by-bank basis will provide a comprehensive
picture of banks’ asset quality and vulnerabilities (by end-March).
The Fund notes that the abolition of the property related tax
expenditure will now likely take effect in 2012, following the preparation and
publication of an economic impact assessment.
Since the economic crash, there has been much confusion
regarding European bank exposure to Ireland because Bank for International
Settlements data includes foreign banks' liabilities at Dublin's offshore
financial services centre, the IFSC.
Today's report says efforts are underway to address data gaps
and further strengthen data quality.
A technical assistance mission from STA (the IMF's statistics
department) overlapped with the interim review mission in January 2011. The
report says: "Staff worked closely with central bank
and central statistical office staff to develop methods for reporting on debt
service payments (interest and amortization) broken down by sector and
instrument. In addition, a work program was agreed to enable a distinction to be
made between assets and liabilities of the domestic Irish banking sector, and
those of the International Financial Center located in Dublin. This will help
analysis of the Irish banking system by disentangling it from international
institutions operating in Ireland."
The IMF said that due to the imminent elections, the first and
second review of the program will be combined and conducted only when the
government is in place. In the meantime, technical discussion will continue to
assess progress and discuss operational aspects of policy implementation to
achieve the objectives under the program.
*IMF's internal currency: Special Drawing Rights