Michael Noonan, Irish Minister for Finance and Elena Salgado, Spanish Economic Affairs and Finance minister, Brussels, Oct 03, 2011

The bailout troika - - European Commission, European Central Bank and International Monetary Fund - - today said the Irish programme is succeeding, but there are challenges ahead. In a statement at the conclusion of the latest review, the group said Budget measures that are being developed by the Government will be assessed by in the coming weeks.

Istvan Szekely representing the European Commission told a press briefing that there was a "substantive discussion" on the possible measures in the Budget, with all possible options discussed.

Ajai Chopra of the IMF, who is the head of mission, said the troika had endorsed the budget deficit target of 8.6% of GDP for next year, adding that the economy needed growth.

Michael Noonan, Finance minister, said: "This Government has been very clear at all times that we are determined to take all the necessary steps to restore our sovereignty. As part of this the Government is committed to making the necessary level of budgetary adjustment in 2012 of at least €3.6 bn to ensure that the 8.6% deficit of GDP target is achieved. My Department and the Department of Public Expenditure and Reform are currently assessing all the relevant information and I will shortly set out in the Medium-Term Fiscal Statement the size of the budgetary adjustment that is required over the years 2012-2015 in order to ensure that the General Government deficit is below 3% of GDP by 2015. The relevant tax measures will be announced on Budget day but will be guided by the agreed Programme for Government."

Brendan Howlin , Public Expenditure & Reform minister said the Government had made it clear it wanted to use the proceeds of any sales of State assets to stimulate growth in the economy. He said the Government and the troika would continue to engage on this issue between now and the next review.

Howlin said the troika had proposed that sale proceeds to be used to reduce debt, and had not formally moved from this position. But Howlin said the troika were willing to engage with the Government on its ideas.

Troika statement

Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) visited Dublin during October 11–20 for the regular quarterly review of the government’s economic programme. As envisaged when the mission was scheduled, policy discussions have been concluded with the exception of the specific fiscal measures to be included in Budget 2012, which are being determined by the Government and will be assessed by the three institutions in the coming weeks. Following these decisions, the EC and IMF missions will seek approval for the completion of this review from the European Council and the IMF Executive Board respectively.

Programme implementation continues to be strong. The authorities have completed the key initial phase of the comprehensive financial sector reforms launched in March. The fiscal deficit limit of 10.6% of GDP in 2011 is expected to be met and important structural reforms are being put in place. These strong policy efforts have underpinned the decline in Irish sovereign spreads in recent months, together with improved EU financing terms.

In a welcome sign of Ireland’s strengthened competitiveness, economic growth in the first half of 2011 was higher than expected. But the slowdown in key trading partners is likely to cool Ireland’s export growth. In addition, domestic demand is expected to contract slightly faster than was projected at the time of the previous review. Together, these factors will dampen the economic recovery with real GDP growth expected to be about 1percent in both 2011 and 2012.

The authorities are firmly committed to fiscal consolidation to put the country’s debt on a downward path, by bringing the general government deficit to below 3percent of GDP by 2015. The forthcoming 2012 Budget will make progress along that path by implementing sufficient consolidation to safely limit next year’s deficit to no more than 8.6% of GDP, striking a balance between debt reduction imperatives and limiting the drag on growth and job creation.

To underscore their commitment to sound fiscal policy, the authorities intend to update the medium-term fiscal consolidation planin the coming weeks, with the supporting measures to be provided with the 2012 Budget. These measures will be guided by the authorities’ Comprehensive Review of Expenditure, enabling savings to be made in a targeted manner rather than through across-the-board cuts. We welcome the establishment of the Irish Fiscal Advisory Council and the release of its first fiscal assessment report.

The key initial phase of the comprehensive financial sector reforms launched last March has been implemented. Recapitalization of the banking sector has been completed at a lower than expected cost to the budget, benefiting from private investor participation and burden-sharing with the holders of subordinated bank debt. Deleveraging of the banking sector is progressing as planned, despite challenging conditions and banks have secured term funding reflecting improved confidence. Further progress in these areas is needed to allow banks to fulfill their essential role in the economy.

The authorities are implementing structural reforms to support job creation and growth. To help reduce unemployment sectoral wage agreements are being prepared, together with a strengthening of activation and training policies. Legislative changes are being introduced to enhance competition in the medical, legal and pharmacy sectors with the view to lowering costs.

The objectives of Ireland’s EU-IMF supported programme are to address financial sector weaknesses and to put Ireland’s economy on the path of sustainable growth, sound public finances, and job creation, while protecting the poor and most vulnerable. The programme includes loans from the European Union and EU member states amounting to €45.0 bn and a €22.5 bn Extended Fund Facility with the IMF. Ireland’s contribution is €17.5bn. Approval of the conclusion of this review will allow the disbursement of €3.8bn by the IMF and €4.2 bn by the EU. The mission for the next program review is scheduled for January 2012.