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Ireland is meeting the terms of the bailout agreement negotiated in November 2010, although considerable challenges remain, the Troika said at the conclusion of its 6^th quarterly review of the economy.

Staff teams from the IMF, European Commission and ECB [Troika] were in Dublin between April 17-26 to review Ireland’s progress under the terms of the bailout programme. As of this review, the underlying Irish budget deficit stands at 9.4% - well within the 10.6% target agreed with the Troika.

“Ensuring recovery in Ireland’s highly open economy will require that these policy efforts continue, and that the external environment improves. The EC and IMF missions will seek approval for the completion of this review from the relevant EU bodies and the IMF Executive Board respectively”, the Troika said in its review. Moreover, the government is on track to meet the 8.6% budget deficit, it added.

The Troika noted that continued progress has been made on structural reforms aimed to boost competitiveness. Confidence in Ireland among international investors has improved on the back of these initiatives, although “bond yields remain elevated”.

“Ongoing work to restore the health of the Irish financial system is critical to enabling a recovery in domestic demand. Efforts to strengthen the quality of bank assets are intensifying through strategies for dealing with mortgage and SME loan arrears. The personal insolvency reform will further facilitate the resolution of unsustainable debts, where the authorities are taking care to balance the rights of debtors and creditors and uphold Ireland’s tradition of debt servicing discipline. Finally, Permanent TSB is moving ahead with completing its restructuring plan.

“Nonetheless, considerable challenges remain. Economic growth is expected to remain modest in 2012, at around ½ percent. The benefits of continued competitiveness gains are limited by relatively low trading partner growth, while domestic demand continues to decline and the banking sector faces difficult market funding conditions. Technical work on further financial sector reforms to support prospects for recovery in domestic demand and Ireland regaining market access continues. Overall, strong policy efforts by the Irish authorities, together with the support of Ireland’s partners, will be needed to achieve the goals of the programme in these challenging circumstances.”

The $85bn bailout package was negotiated in November 2010 when Ireland was locked out of the sovereign debt market. Approval of the conclusion of this review is scheduled to make available a disbursement of €1.4 billion by the IMF €2.3 billion by the EU. The mission for the next programme review is scheduled for July 2012.