The IMF on Ireland’s public finances

The IMF has released several papers as part of its reassessment of its own role and the conventional wisdom that had governed economic policy advice prior to the current crisis.  One paper looks at the state of public finances in many advanced and emerging market economies, including Ireland.  There is a lot of detail, but overall it’s a mixed picture for Ireland.

The bad news is in Table 1 (page 7), which shows the cost so far of financial sector support.   For Ireland, it’s 263% of GDP, easily the largest among the countries analyzed.  Of course it’s because of the liability guarantee, so the up front fiscal cost is much lower.  And the figures don’t seem to take account of the recent post-crash insurance deal being offered by the UK.

The slightly better news is Table 8 (page 35) which shows the public debt and primary budget deficit (i.e. excluding interest payments).   The comparison of pre-crisis forecasts with new ones shows that Ireland has had the worst deterioration in the fiscal situation except for oil producers (a fact also  evident from the EU Commission analysis), but that because of the low initial debt level, even the drastic worsening can still be corrected (i.e. getting us compliant with Eurozone rules) with modest future budget surpluses (compare to the other shaded countries in the last column).

But that all depends on our funding costs not going through the roof and the crisis not lasting longer than is generally expected.  As we know, February already went off track.  A lot is riding on the April budget.