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Getting Back on Track: Restoring Fiscal Sustainability in Ireland

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  • David Haugh

    (OECD)

Abstract

Ireland’s banking crisis, one of the most severe in the OECD area, and the associated economic recession have taken a heavy toll on public finances. Large public deficits have accumulated since 2008 and net public debt, which had been eliminated, has soared once again. The rapid deterioration of the fiscal accounts, together with the government guarantee of banks’ liabilities, has led to Ireland losing the confidence of the sovereign bond market and requiring financial assistance from the international community. With one of the highest levels of gross public debt relative to GDP in the OECD, high bond spreads and weak nominal GDP growth, returning to a healthy fiscal position poses a significant challenge. A sustained effort will be needed to eliminate the budget deficit, regain the confidence of financial markets and to seek to increase trend growth through appropriate structural reforms. The economic adjustment programme supported by the IMF and the EU foresees a gradual consolidation of the public finances to stabilise and reduce the debt to GDP ratio and restore fiscal sustainability. The programme builds on significant progress that has already been made to contain the deterioration of fiscal accounts and the government plans to introduce further fiscal adjustment in 2012 and later years in line with the programme. The programme also foresees a strengthening of the fiscal framework, with large institutional changes intended to secure a path of fiscal sustainability in the medium-term. The consolidation effort is also underpinned by efforts to increase public sector efficiency, which provides a growth-friendly avenue for reducing the deficit in a durable way. This Working Paper relates to the 2011 OECD Economic Survey of Ireland (www.oecd.org/eco/surveys/ireland). Rétablir la viabilité budgétaire en Irlande La crise bancaire irlandaise, l’une des plus graves de la zone OCDE, et la récession qui l’a accompagnée ont lourdement pesé sur les finances publiques. Le pays connaît d’importants déficits depuis 2008 et la dette publique nette, qui avait été éliminée, est en forte résurgence. Á cause de la dégradation rapide des comptes budgétaires et de la garantie donnée par l’État aux engagements des banques, l’Irlande a perdu la confiance du marché des obligations souveraines et a dû recourir à l’aide de la communauté internationale. Sachant que le ratio dette brute/PIB est l’un des plus élevés de l’OCDE, que la prime sur les taux obligataires est importante et que la croissance du PIB nominal est faible, le retour à une situation budgétaire saine représente un sérieux défi. Un effort soutenu sera nécessaire pour résorber le déficit, regagner la confiance des marchés financiers et augmenter la croissance tendancielle par des réformes structurelles appropriées. Le programme d’ajustement économique soutenu par le FMI et l’UE prévoit un redressement graduel des finances publiques afin de stabiliser, puis de réduire, le ratio dette/PIB et de rétablir la viabilité budgétaire. Il s’appuie sur les progrès significatifs déjà réalisés, qui ont permis de contenir la dégradation des comptes budgétaires, et le gouvernement envisage de procéder en 2012 années suivants à un ajustement supplémentaire conforme au programme. Celui-ci prévoit aussi un renforcement du cadre de la gestion budgétaire comportant de grands changements institutionnels destinés à assurer la viabilité à moyen terme. L’effort de redressement bénéficie aussi des mesures prises pour rendre le secteur public plus efficace, ce qui est un moyen favorable à la croissance de réduire durablement le déficit. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de l’Irlande 2011 (www.oecd.org/eco/etudes/irlande).

Suggested Citation

  • David Haugh, 2011. "Getting Back on Track: Restoring Fiscal Sustainability in Ireland," OECD Economics Department Working Papers 909, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:909-en
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    File URL: http://dx.doi.org/10.1787/5kg0t004q1d3-en
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    Keywords

    cadre fiscal; conseil fiscal; consolidation budgétaire; contestability; contestabilité; croissance de production potentielle; debt sustainability; dette publique; dépenses publiques; efficience du secteur public; fiscal consolidation; fiscal council; fiscal frameworks; fiscal policy; fiscal rules; indicateurs de performance; Ireland; Irlande; organismes du secteur public; performance indicators; politique fiscale; potential output; public debt; public expenditure; public sector agencies; public sector efficiency; règles fiscales; viabilité de la dette;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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