17/12/2012: Christmas Message from the IMF

Full IMF statement on Programme Review for Ireland is linked here. Very positive, per usual, with some cautionary note at the end. I will quote that part, you can read the platitudes.

"Looking ahead, however, a more gradual economic recovery is projected, with growth of 1.1 percent in 2013 and 2.2 percent in 2014, with public debt expected to peak at 122 percent of GDP in 2013. This baseline outlook is subject to significant risks from any further weakening of growth in Ireland’s trading partners, while the gradual revival of domestic demand could be impeded by high private debts, drag from fiscal consolidation, and banks still limited ability to lend. If growth were to remain low in coming years, public debt could continue to rise, in part reflecting the potential for renewed bank capital needs to emerge."

Irish Government Budget 2013 is built on the assumed growth of 1.5% (0.5 ppt ahead of IMF forecast) in 2013 and 2.5% in 2014 (0.3 ppt ahead of IMF forecast). Government debt is forecast by the Budget 2013 to peak at 121% of GDP, against IMF forecast of 122%.

Mr. David Lipton, First Deputy Managing Director and Acting Chair, said: "Vigorous implementation of financial sector reforms is needed to revive sound bank lending in support of economic growth. Key steps forward include arresting the deterioration of banks’ asset quality, reducing their operating costs, and lowering funding costs through orderly withdrawal of guarantees. The personal insolvency reform being adopted should facilitate out-of-court resolution of household debt distress, especially if complemented by a well functioning repossession process to help maintain debt service discipline and underpin banks’ willingness to lend."

Note the renewed emphasis on repossessions.

And to top it all, the IMF repeated a call for 'breaking the link between banks and the sovereign'. This marks a series of similar statements seemingly addressed at the EU leadership and I won't be surprised if the Fund were to focus on this issue much more as the EU continues to prevaricate on restructuring Irish debt.

So ehre we have it, folks - homes repossessions and debt relief for the sovereign. Prepare for the Benchmarking 3.0 once that 'debt relief' is delivered, then.