A three-year EFF arrangement with access of SDR 19.5 billion was approved on
December 16, 2010. Following elections on February 25, a new coalition government with a
comfortable majority took office on March 9. In light of a delay in the first review made necessary by
the early elections, the authorities request to combine the first and second program reviews and, given
the smaller immediate external financing needs, also request a rephasing of the arrangement.
Mission. Discussions were held in Dublin during April 5–15, 2011.
The IMF team comprised A. Chopra (head), C. Beaumont, J. Mathisen, and B. Barkbu (all EUR), S. Abbas (FAD), D. Hawley and
O. Stankova (EXR), B. Kelmanson (SPR), M. Luedersen (LEG), L. Cortavarria, and P. Bologna
(MCM). Teams from the EC and ECB participated in the discussions. P. McGoldrick (OED) attended
Performance under the program.
Policy implementation is off to a strong start. All relevant
performance criteria for the first and second reviews, and all but one of the structural benchmarks
were observed. In particular, at end March the authorities announced comprehensive banking reform
and recapitalization plans which were well received by financial markets and analysts.
Program discussions. The discussions focused on the implementation of the banking sector reforms
and on fiscal consolidation. Specifically, focus was on (i) the schedule and sources of funding for
recapitalizing the four guaranteed banks; (ii) timetables and steps for reorganizing domestic banks and
the framework for the deleveraging of banks during 2011–13; and, (iii) ensuring that any adjustments
in fiscal plans include compensating measures so that the program targets for 2011 and beyond remain
achievable, while allowing the automatic stabilizers to operate.
Risks to the program, already high at program approval, have increased in some
respects while declining in others. Slower growth and higher unemployment, further ratings
downgrades, and developments in other Euro Area crisis countries—have contributed to a rise in bond
spreads that hinders Ireland’s prospects to regain market access on affordable terms in the near future.
Policy recommendations. The program risks must be actively managed with support from a more
comprehensive European plan. Timely implementation of the banking strategy—recapitalization,
reorganizing and deleveraging the viable banks, and resolving the non-viable banks—remains critical
for program success in restoring the banking sector to healthy functionality so it can begin to
contribute to renewed growth.
This intensive effort must continue to be underpinned by fiscal
consolidation and structural reforms to overcome doubts regarding the feasibility of the necessary
fiscal adjustment and regarding growth prospects in the medium term.