12.07.2012

By Simon Miller

The Troika has praised Ireland’s austerity programme for remaining strong despite a challenging environment.

After its latest review of Ireland, the International Monetary Fund (IMF), the European Commission and the European Central Bank said the country continued to advance reforms to restore the health of the Irish financial sector.

However, ongoing household balance sheet repair and a still weak labour market continued to hinder growth in domestic demand with growth prospects for the remainder of 2012 and into 2013 remaining modest with weak trading partner growth dampening export demand despite further competitiveness gains.

Ireland recently re-entered the debt markets with a modest but successful sale of €500m (£394.6m) in 3-month Treasury bills at a yield of 1.80 last week in a sign of growing confidence in the country’s prospects.

In a statement, the Troika added: “The recent notable decline in bond yields underlines the increasing confidence in Ireland’s strong capacity to implement adjustment policies and also reflects the recent euro area summit statement. These developments also supported the recent successful return to the Treasury Bill market at reasonable cost.”

Fiscal targets for the first half of 2012 were met, further extending Ireland’s record of consistently achieving program targets, and the budget deficit is on track to be within the 8.6% of GDP target for 2012.

“Despite the weakening external environment and higher unemployment, strong collection efforts have brought in revenues ahead of profile. However, Ireland's budget deficit remains the largest in the euro area, and it is essential that the authorities maintain prudent control of expenditure, including in health care. The result of the end-May referendum enables ratification of the Treaty on Stability, Coordination and Governance, and forthcoming legislation to implement the Treaty will strengthen Ireland’s fiscal framework,” the Troika added.

''We are pleased to confirm that halfway through the programme we continue to meet all our targets. All measures have been implemented and the programme remains on track. This successful outcome illustrates, once more, the ability and the commitment of the Irish State to implement a challenging programme effectively,'' finance minister Michael Noonan and public expenditure and reform minister Brendan Howlin said in a joint statement today.

The conclusion of this review will make IMF funds of €0.9bn and European Financial Stability Mechanism/European Financial Stability Fund's of €1bn available to Ireland, while other EU member states are expected to give a further €0.7bn through bilateral loans. The next review mission is due in October.