Ireland : Eleventh Review Under the Extended Arrangement

Policy implementation remains on track but recent weak GDP data point to a slower growth recovery. Real GDP declined in the first quarter, reflecting a fall in exports and weak domestic demand. Nonetheless, fiscal results remain on track and sovereign and bank bond yields have risen relatively modestly in response to declining global risk appetite. A range of other economic indicators are more encouraging, suggesting lower but still positive growth in 2013, though uncertainty remains. Growth projections for 2014 are also lowered given weaker prospects for consumption recovery and for trading partner growth. Maintaining steady fiscal consolidation efforts remains central. Key budgetary measures for 2013 have been implemented effectively and broad acceptance of important public sector pay and pension savings has been achieved. Nonetheless, continued firm implementation of Budget 2013 is required to achieve this year’s fiscal targets. Further fiscal consolidation efforts were agreed for 2014–15, with cumulative efforts in line with program targets. After undue delay, banks are now beginning the resolution of impaired loans and this work must press forward to reduce arrears and related uncertainties. Banks have begun to engage with mortgage borrowers in arrears to propose durable solutions. The establishment of the Insolvency Service and the removal of an unintended hurdle to repossession proceedings are, among other steps, expected to help facilitate loan resolution progress. Nonetheless, the authorities should keep the effectiveness of the resolution framework under review and close supervision of banks’ efforts will remain essential. Preparations for balance sheet assessments of the three domestic banks to be completed in the Fall are advancing as planned. Employment has begun to pick up but high long-term unemployment remains a key challenge. Resources for the activation of the long-term unemployed should be further augmented, including through private sector service provision. Facilitating SME examinership could aid resolution of SMEs in arrears, supporting their potential to invest and create jobs. Ireland is expected to return to reliance on market financing in 2014, yet further European support could make Ireland’s recovery and debt sustainability more robust. Irish banks face weak profitability that hinders their capacity to revive lending. European support to lower banks’ market funding costs could help sustain domestic demand recovery in t ...