A smaller, better targeted Budget 2024 package would have been “less costly” for the Government while still protecting the most vulnerable with less risk of further stoking inflation, the International Monetary Fund has said.
The Republic should also look at ways of strengthening the efficiency of public investment, including streamlining the judicial review process to reduce “uncertainty” around large-scale projects, according to the Washington-based fund.
Published on Friday following its regular health check of the Irish economy, the IMF said in its concluding statement that the Government’s Housing for All strategy should be “further complemented” by supply-side measures aimed at addressing affordability, land use and construction productivity.
“Measures providing greater certainty to developers, such as improving the transparency and certainty about approval processes, as well as accelerating the process are also required,” it said.
On climate action, the fund said Ireland is likely to fall short of its 2030 emission reductions targets and progress needs to “speed up”.
“The authorities have legislated an annual increase in carbon tax to 2030, with revenues committed to be fully recycled to address the cost of climate change. They will also need to implement additional policies that deliver emission reductions across all sectors faster than expected,” the report says.
Overall, the IMF said Irish economic growth is expected to moderate this year from “a very high base” after several years of rapid expansion.
It now expects Irish gross domestic product (GDP) to grow by 1.2 per cent this year and 2.6 per cent in 2024, down from an average of 12 per cent between 2021 and 2022. This is lower than the Central Bank’s most recent forecast of 2.9 per cent growth this year.
Inflation, meanwhile, is expected to average 5.5 per cent this year, falling to 3.2 per cent in 2024. However, the rate of Irish consumer price increases is not expected to fall back to the European Central Bank’s (ECB’s) 2 per cent annual target until 2025, it said.
“Tighter financial conditions, supply side constraints and weakening external demand are expected to weigh on the domestic economy,” the IMF said. “At the same time, a strong labour market, a recovery of real incomes as inflation recedes and a rundown of excess household savings accumulated during the pandemic should support private consumption in the near term.”
With inflation still elevated, the IMF said fiscal policy should avoid adding to aggregate demand. It concluded the Government’s €14 billion Budget 2024 envelope comprised a “slightly expansionary stance” when a smaller package could have sufficed.
“A smaller and better targeted package would have been less costly while still protecting the most vulnerable,” it said. “As inflation continues to recede, one-off cost of living measures should be phased out.”
