The International Monetary Fund (IMF) has warned the government that some Covid-style support may be needed to counter the effects of the war in Ukraine.
However, the Washington-based fund said after a week-long mission in Dublin that the government should remain “flexible both ways” and withdraw support if it leads to higher prices.
Last month, the IMF forecast average inflation of 6.5 percent this year and 2.8 percent in 2023, with gross domestic product (GDP) growing 6 percent this year and 5 percent in 2023.
“Fiscal policy must strike a delicate balance between combating headwinds from the war in Ukraine and containing inflationary pressures,” said Khaled Sakr, head of the IMF’s Ireland mission.
“Given inflationary pressures, future additional support, if needed, should be temporary and carefully targeted to better support vulnerable populations while maintaining price signals to drive energy savings.”
The government has room to spend more on “social and pro-growth and green” projects, the IMF said in its report, as the debt-to-GDP ratio is expected to fall below 40 percent by 2027.
More investment in education and training could also help address shortages of construction workers, the IMF said.
It also warned that domestic firms are still lagging behind their multinational counterparts.
With corporate tax changes ahead and pension costs looming, the IMF said the government should “broaden” the tax base by scrapping special VAT rates, raising property taxes and investing future corporate taxes in a bad-time fund.
The IMF also warned in its report of ongoing problems with the housing supply and bank profitability.
With regard to housing, the IMF says the government should facilitate the acquisition of building skills while speeding up building permits and local zoning.
It said the government’s equity ownership program for first-time home buyers is unresponsive to supply and could push prices higher, warning the government to keep it “narrowly targeted and limited in size to avoid further upward pressure on prices.” impede”.
Banks are well capitalized, but their “profitability remains under pressure,” the IMF said, making access to mortgages expensive and making access to SME credit difficult.
It should be easier to repossess homes, and the government should lift caps on bankers’ salaries and bonuses and re-private the remaining private lenders, the report said.
“It is important to solve persistent problems [global financial crisis]particularly in relation to the challenges of collecting collateral, recognizing the need for banks to retain talent and emphasizing the importance of divesting state property,” said Paul Mathieu, head of the Irish mission’s financial sector assessment team.
It said the central bank’s mortgage limits should be “monitored” and “supplemented with total debt caps” where warranted.
The IMF also warned of the large amount of foreign-owned assets in Ireland, which it estimates at 90 percent of total wealth. Real estate funds are said to hold assets worth around 40 percent of GDP.
Significant cross-border flows of real estate investment could “act as a contagion channel for global financial shocks,” it said.
https://www.independent.ie/business/irish/economy-may-need-further-aid-imf-warns-government-41618755.html The economy may need more help, the IMF warns the government