IMF releases its report on the Irish economy

A new report released yesterday on the Irish economy says that it was perhaps the most overheated of all advanced economies. The detailed analysis by the International Monetary Fund says the collapse of tax revenue could push the budget deficit up to 12% of national income this year, compared with a Government target of 10.75%.

The IMF says Ireland's seemingly unstoppable economic growth of recent years masked serious problems - including the fragility of the public finances. It says generous rises in public sector wages pushed up wages elsewhere, making Ireland less competitive. In recent years, the IMF says, Ireland became the most expensive economy in the euro zone with the possible exception of Luxembourg.

The report says losses now faced by the banks could be about €35 billion by 2010 - although the bulk of that would be absorbed the banks' reserves. The IMF is broadly supportive of the Government's NAMA project to buy back bank debt. But it says setting a price for the purchase of those assets could be easier if the banks are nationalised. Not paying the right price, it says, opens the taxpayer to huge risks. The report says nationalisation could also be used to effect necessary mergers.

The IMF is projecting that the Irish economy will shrink by 8.5% this year, with another 3% drop in 2010. It says unemployment will reach 15.5% of the workforce next year.