International Monetary Fund report warns that poor state of Irish banks is holding back recovery
A slowing economy, sky-high debts and a weak banking sector mean Ireland will need support from the European Union when its current bailout ends later this year, the International Monetary Fund said in a report on Friday.
In a clear call for Brussels to accede to Irish demands for a credit line next year, the IMF warned that Dublin's recovery would be hampered without cheaper funding for its ailing banks.
The report will deal a blow to the Irish government, which is under pressure domestically to maintain business and consumer confidence in the face of significant economic headwinds. In particular, export growth, which has underpinned the economy's recovery, has fallen in 2013.
The IMF said that while exports had picked up moderately in recent months, the recovery would not stop Ireland's debts hitting 123% of GDP by the end of the year. Making matters worse, the poor state of the country's banks is holding back the domestic economy.
"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 the medium term, protecting debt sustainability and financial market confidence," it said.
The IMF has conducted 11 reports on Ireland's economic recovery since it joined a three-way bailout of the country with the EU and the European Central Bank in 2010.
Ireland would be the first bailed-out eurozone country to wean itself off emergency aid if it exits the €85bn scheme on schedule at the end of this year.
The IMF said Dublin was on track to meet its obligations under the deal, but "near-term prospects are weaker and significant fiscal, financial sector and unemployment challenges remain".
Ireland was forced to seek help after a property crash left its banks massively under-capitalised and the state's finances collapsed.
Since then it has stuck rigorously to the recipe of austerity laid out in the programme by its "troika" of lenders.
The EU is desperate for Ireland to exit the rescue smoothly to show the tough-love approach can succeed, given the struggles of fellow bailout recipients Greece and Portugal and deep-rooted public dissatisfaction across the region.
Ireland has met nearly all its funding needs through next year by issuing debt periodically over the last 12 months, having issued a 10-year bond in March for the first time since being locked out of markets in late 2010.
Yet banks continue to shun calls from households and businesses for easier credit conditions while struggling with low profits and a ratio of bad loans that has reached 26%.
Unemployment also remains a huge problem. A fall in the jobless rate from 15% to 13.7% since early 2012 has eased the social security burden but 58% of those without work are considered long-term unemployed, "posing a risk to Ireland's growth potential", said the IMF.
IrelandInternational Monetary Fund (IMF)Eurozone crisisEuropean UnionEuropean banksEconomicsBankingFinancial crisisFinancial sectorEuropePhillip Inmantheguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds |
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