DUBLIN (Reuters) - Ireland’s should consider accelerating its programme of budget cuts next year to bring down its debt pile more quickly, the country’s independent fiscal watchdog said on Thursday.
The Fiscal Advisory Council, set up under the country’s EU/IMF bailout programme, is charged with assessing the government’s fiscal stance and economic forecasts.
In its third report, it gave both the thumbs-up, saying this year’s austerity targets remained on track.
But it repeated a warning that deeper fiscal cuts should be considered from next year onwards given the significant uncertainty surrounding debt projections.
The council proposed that 1.9 billion euro worth of tax rises and spending cuts be added to the 8.6 billion planned between 2013 and 2015 - just under 1 billion lower than the extra fiscal burden it had recommended in April.
“This would help to put the debt to GDP ratio on a faster downward trajectory and would provide additional insurance, albeit limited, in the effort to ensure debt sustainability,” the council said, referring to its proposed measures.
Irish sovereign debt, bloated by years of economic mismanagement and bank recapitalisations, is set to peak at around 120 percent of gross domestic product next year.
The council said there was a 40 percent chance that the ratio would fail to stabilise as projected without further action.
Relief on the banking-related part of Ireland’s debt, under discussion with the country’s European partners, would increase the chance of the rate topping out at 120 percent.
Europe’s agreement to look at easing Ireland’s bank debt has also helped pave the way towards a full return to capital markets for Dublin, which has already cut to 2.4 billion euros from 12 billion euros a funding cliff looming next year just after it plans to exit the bailout programme.
The council said that, given the extent of the budgetary adjustment required, all measures should be kept under close review including tax rates, public sector pay and pensions, and welfare rates, and the governing coalition might have to cross some of its red-line issues.
Ireland’s forecast that it will beat its deficit target for this year by reducing it to a still-high 8.3 percent of GDP from 9 percent in 2011 looks achievable, it said, with the main risks centring on weaker than anticipated growth in the second half of the year and overspending government departments.
Reporting by Padraic Halpin; Editing by John Stonestreet