DUBLIN (Reuters) - Ireland will target 12.4 billion euros (10 billion pounds) in austerity measures over the next four years, further tightening the screws on its recession-weary people as it seeks to cement its transformation from European basket case to recovery story.
Prime Minister Enda Kenny needs to drastically squeeze the budget deficit if he is to extract Ireland from a humiliating EU-IMF bailout and return to debt markets in 2013.
Some analysts, however, are sceptical Kenny can pull it off, given the global uncertainty and its impact on growth. They believe Ireland will continue to be supported by European partners when the current rescue programme runs out in 2013.
“We are doing well, we are doing our job and ticking the boxes but that is all we can do,” said Brian Devine, chief economist at NCB Stockbrokers. “I think the government’s growth figures are too optimistic. At the moment I can’t see how Ireland can get back into the market.”
A worsening growth outlook means the government will have to target austerity measures totalling 3.8 billion euros next year, higher than the 3.6 billion euros initially pledged, with nearly 60 percent of the adjustment weighted on the spending side.
“These cuts are real. One person’s cut is another person’s public service. we are not making light of this,” Finance Minister Noonan told a news conference on Friday.
“We are asking the people to stay with us because we have a clear programme for getting the country out of the difficulty it is in.”
Dublin now expects gross domestic product to expand by 1.6 percent next year, compared with its earlier forecast of 2.5 percent previously. Its revision puts it broadly in line with the latest forecast from the IMF of 1.5 percent and the median estimate from 10 economists polled by Reuters of 1.5 percent.
It sees GDP growth averaging around 2.8 percent from 2013 to 2015 compared to 3 percent previously. Ireland needs medium term growth of around 2.5 percent to ensure its debt is sustainable.
But the outlook is finely balanced. The finance ministry has warned a cut in nominal GDP growth of 1 percent in 2012-2015 could see its debt-to-GDP ratio climb to 122 percent in 2013, a level that would likely prevent a return to debt markets.
A property crash and bank sector meltdown tipped Ireland into severe recession and left it with the worst deficit in the industrialised world, jumping to an eye-popping 32 percent of GDP in 2010 due to the cost of rescuing its banks.
As part of an 85 billion euros EU-IMF bailout, Dublin has promised to get its deficit to under 3 percent of GDP, an EU limit, by 2015. It is only midway through an eight-year cycle of austerity running through 2015.
Noonan, whose government was swept to power in March, will present his first crunch budget on December 6.
The government is adamant it will avoid Greek-style debt restructuring. But Noonan said on Friday he would see if there were other ways to cut the Irish debt burden, possibly through getting Europe’s rescue fund to take an equity stake in Allied Irish Banks ALBK.I.
When Ireland agreed its EU-IMF bailout in November 2010 it set out a 15 billion euros adjustment plan for 2011 to 2014. But the worsening global picture, exacerbated by a rapidly unravelling Greek crisis, means Noonan has to squeeze more over a longer period.
For 2013, for example, he is targeting a fiscal adjustment of 3.5 billion euros compared to 3.1 billion euros in the original bailout deal.
So far, Ireland’s fiscal plans are on track and despite pushing through nearly 21 billion euros in spending cuts and tax increases, equivalent to more than 13 percent of GDP, there has been no social unrest, in contrast to Athens.
“We don’t like the cutbacks but you do get used to them. We don’t want to go down the Greek road. The country’s long-term reputation is important,” said Alan, a 44-year-old father of two.
Ireland’s success in so far meeting its fiscal targets, the recapitalisation of its banks’ bad debts and its political and social calm have struck a chord with investors.
Irish debt yields have dropped from the record highs hit over the summer and the country is increasingly viewed as a possible recovery story, provided the euro zone’s debt crisis doesn’t unhinge things.
Reporting by Carmel Crimmins and Conor Humphries; Editing by Ron Askew