Ireland’s economy has returned to growth, but there must be “determined” policy efforts in both the public sector and financial sector repair, a report from the EU/IMF/ECB troika has said.
In its third review of Ireland’s post-bailout progress, the troika said banks should have “sufficient leeway” in setting their own mortgage interest rates, but welcomed efforts to promote transparency in this area. Further competition should also be encouraged in the banking sector, it stated.
The troika’s stance is at odds with the Government’s on the issue, with Taoiseach Enda Kenny indicating that banks could face action in the next budget if they fail to reduce variable mortgage interest rates.
The troika report said Ireland’s recovery would be increasingly driven by domestic demand, but added the 2016 budget deficit target did not take full advantage of strong economic growth.
“Ireland is among the fastest growing economies in the euro area due to the improved economic environment and a successful domestic rebalancing with policies to strengthen public finances and repair the banks,” the report said. “Ahead of the next parliamentary elections, the challenge is to enhance the public debate on prudent fiscal policies and structural reforms to further reduce high levels of public and private debt and to set the course for balanced and sustainable economic growth.”
The report noted that repayment risks for loans from the European Financial Stability Mechanism (EFSM) and European Financial Stability Facility (EFSF) were low, with favourable market access conditions for Ireland to sell debt, along with a comfortable cash buffer. Yields on Irish bonds have reached a historical low.
However, although some efforts have been taken to strengthen the financial sector, more work was needed to improve the bank performance and to address supply shortages in the property market, the report said. The rate of non-performing loans in the Irish market was high, at just over 23 per cent of total loans in the three main banks by the end of 2014, with the legal system slowing down the debt resolution process. The report also noted the low rate of use of the new insolvency and bankruptcy framework, although measures had been put in place to address the problem.
The reform of the water sector will be tested by the level of payment compliance, with about two thirds of households registering with the utility provider, as of the end of April. The first bills were issued to customers from early April.
“Given that the €100 water conservation grant is conditional upon registration, this rate is an indication that resistance against paying for water services remains high, with some social groups actively calling for boycotting the charges,” the report said.
The number of households that have paid their water bill is unknown; Irish Water has so far refused to publish any figures.
“Payment compliance will be key for Irish Water’s ability to raise revenue and deliver on its investment programme,” the troika said.
