Saturday, May 15, 2010

Economics 15/05/2010: IMF on fiscal stability II

Continuing with IMF Fiscal Outlook update released yesterday (see the first post here) - I have compiled IMF data on Ireland's fiscal position, and added some GDP/GNP gap and Nama analytics. As usual, the table below should be self-explanatory:
So quick conclusions:
  • For all the talk about Government doing the right things, our deficit is record busting for 29 leading advanced economies in 2010 and 2011 in terms of share of GDP. It is expected by the IMF to decline only marginally to 28th and 27th ranks in 2014-2015.
  • Despite repeated assurances to the markets and the EU, Ireland is not expected to reach 3% deficit limit by 2015, with IMF expecting our deficit to be -5.3% of GDP in the end of 2015.
  • When converted to a more realistic measure of our income - GNP - our deficit is jaw-dropping 16% in 2010. It is forecast to be at -6.9% in 2015.
  • Iceland, Portugal and Greece are expected to significantly outperform Ireland in terms of deficit in 2010-2015.
  • For all the talk about 'small Government', Irish Government spending as a percentage of our economy (GDP) has increased dramatically between 2000 and 2009, rising by over 50%.
  • In 2009 our Government's share of the economy measured by GDP was in excess of the average for the advanced economies.
  • In terms of GNP, our Government's share of economy was over 34% higher than the average for the advanced economies.
  • In 2010, Irish Government's share in the economy is expanding, despite the chorus of voices from the Left that we are not having a public sector expansion. It is forecast to rise to 46.6% of the entire economy relative to GDP and 61% in terms of GNP. Average for advanced economies is expected to be 43.2% (a decline on 2009).
  • Last year, we ranked as the economy with second largest share of GNP accruing to the State. In 2010 we will be the first economy.
  • Irish Government's graft on Irish economy was heavier than that of Sweden in 2009 and will remain such through 2015.
  • Despite having none of the superior public services supplied by the Swiss Government, Irish economy is paying its Government a toll (in terms of economic income captured by the State) that was 6.4% greater than in Switzerland in 2005, rising to 41% in 2008, to over 61% in 2009. This is the true measure of the rip-off-Ireland carried out by the Public Sector here.
  • The same rip-off is expected to grow over 2010-2015, rising to 66% in 2010 before declining to 53.5% in 2015.
  • Low government debt has been paraded by the State officials and politicians as a crowning achievement of this economy. Back in 2000-2007 that might have been warranted, despite the fact that, when measured relative to GNP, our debt was not really that much lower than that of some of our peers.
  • The debt situation has changed dramatically since then. This year, despite all the talk about the Government's corrective actions on deficit, our debt is going to put us as 24th-ranked country in the advanced countries. In 2011 we will slip down to 25th.
  • By 2015, factoring Nama our debt to GDP ratio will stand at 122% - ranking us 3rd worst performing advanced economy in the world by debt/GDP metric. Ex-Nama, we will hit 122% of debt/GNP.
These numbers put into perspective my arguments that the Government is not doing its job of controlling public spending. Three 'tough' Budgets behind us, we are still rolling down the slippery slope of fiscal insolvency.

The latest talks about finding €3 billion in fresh cuts is yet another plaster on a gaping shark bite of our fiscal policy wreck. We need to find €15 billion in cuts, NOW, folks, and we need to abandon Nama, before we can call in the press and tell them that Ireland is on the mend.

There will be more analysis based on IMF data coming in days to come. So stay tuned.


Paul MacDonnell said...

Splendid stuff. Dr. G.

Anonymous said...

Enlightening analysis as usual.

However I get the feeling that your projections might not pan out the way you present them because politics is now driving policy in the ECB and the political situation in each eu country is also more volatile.
Politics and economic decision making are now in a death embrace(In my opinion).

Joe Larkin said...

The Truth, the Whole Truth and Nothing but the Truth.
Maith a Fear, Comrade Constatin. We need far more of this sort of factual analysis rather than the Ostrich Economics being practiced at the moment.