OECD Economics Department Working Papers

ISSN :: 1815-1973 (online)
DOI :: 10.1787/18151973

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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

Getting Back on Track: Restoring Fiscal Sustainability in Ireland

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Authors:

David Haugh¹

Author Affiliations

1: OECD, France

Publication Date

02 Dec 2011

Bibliographic information

No.:: 909

Pages

DOI

10.1787/5kg0t004q1d3-en

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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).

Keywords:: public expenditure, debt sustainability, public debt, public sector efficiency, contestability, performance indicators, fiscal frameworks, Ireland, fiscal consolidation, potential output, fiscal policy, fiscal council, public sector agencies, fiscal rules

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, Scope, and Performance 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