Little comfort for Irish economy in latest IMF report
The International Monetary Fund (IMF) did not seem to see the scale of the coming Irish economic crash. We can only hope that its long-term vision is still wonky.
Or perhaps the Washington-based fund is determined not to be too optimistic this time. In any event, there is little of comfort in its latest analysis of the Irish economy.
IMF analysts visited Ireland in May and had discussions with ministers, government officials and outside economists. An unusual degree of disagreement is recorded in the report.
This is hardly surprising, given the high stakes involved.
The IMF thinks the recovery will be feeble, dragged down by falling wages and prices, a shortage of bank credit and — despite the wage cuts — a continued lack of competitiveness.
It sees growth averaging just 2% a year from now to 2015. The Government thinks it will be close to 4% — although it will be updating its figures in the autumn.
The difference between the two would amount to more than €3bn in tax revenues over the period.
If the IMF is right, the Government will miss its budget targets, even if it holds its nerve on the €5bn in tax rise and cuts which it plans for its remaining term of office.
Talking of nerve, Irish officials agreed with the IMF as recently as May that a property tax would be a good idea. It might initially take the form of a flat payment — like the one on second homes — before moving to one based on property values.
It is not just property tax, though. While it is not new, it is still worth looking at what the Department of Finance told the IMF about tax plans in the next Budget. They involve eliminating tax breaks, reviewing the income tax bands and consolidating the current levies into the tax and PRSI system as part of a universal social charge.
The IMF adds some welcome common sense to the fractious debate about bank lending and the supply of credit. Banks do not create credit out of thin air and the amount available in the Irish banks is falling as they write off bad loans, deposits shrink, and they are asked to retain more funds as capital.
The report thinks they may not have enough to support even the feeble recovery they expect. British banks have abandoned the Irish market. Shouting for more credit in these circumstances is no better than praying for rain in a desert.
The IMF questions the wisdom of targeting this inadequate supply of credit to particular sectors. The small business sector has been told it will receive €12bn over the next two years. No evidence has been produced as to whether that is the best use for the money.
As the ESRI said last week, forecasts at a time when nothing is certain should not be taken too seriously. The IMF report is best seen as a selection of risk and possibilities, rather than a firm view of the future.
An even more authoritative report once said that today's tasks are enough for today and there is little point worrying about tomorrow. It still sounds like good advice.