Ireland faces "major challenges" ahead and the country's domestic economy remains weak, but the implementation of the country's bailout program continues to be strong, troika officials said today.

The Government is expected to meet its budget deficit target for this year of 10.5 per cent, the latest quarterly review by the country's from the EU-IMF-ECB bailout partners said.

"Growth in the first half of 2011 was stronger than expected," the report said. "But the slowdown in key trading partners is likely to cool Ireland's export growth."

Speaking at a press conference in Dublin this afternoon, IMF deputy director Ajai Chopra said Ireland was doing the right thing, and there was a lot of positives, but warned against losing sight of the risks.

Mr Chopra noted that exports were playing a large part in the recovery, which also posed a risk.

"Export demand is linked to global demand. As we've seen the global outlook has worsened," he said.

He noted that sovereign spreads for Ireland had decline, but warned that "euro area developments have increased drains on both sovereigns and banks", adding that this could affect confidence in the country.

Mr Chopra also highlighted the problem of household debt as a potential risk, dampening domestic demand.

The report predicted domestic demand would contract slightly faster than previously projected. "These factors will dampen the economic recovery with real GDP growth rate expected to be about 1 per cent in both 2011 and 2012," the troika said.

The ECB's Klaus Masuch said the deleveraging of Ireland's banking system is showing "positive signs".

However, it will take time for the banks to return to the markets, Mr Chopra said.

Earlier today, Minister for Finance Michael Noonan described the outcome as “successful” and said discussions had now moved onto the budget.

Mr Noonan reaffirmed the Government’s position of reducing the budget deficit to 8.6 per cent of gross domestic product (GDP) and said he hoped to get there with an adjustment €3.6 billion but added it may have to be higher.

The Minister said there was nothing in the discussions about increasing income tax and decreasing social welfare payments and said these were matters for the Government to decide at budget time. But he added, the troika had no difficulty with the Government “substituting one fiscal measure for another one of equal value”.

Minister for Public Expenditure and Reform Brendan Howlin said the Government wanted to use sale of State assets to stimulate growth in the economy and create jobs and it is continuing to engage with the troika “on how that can be worked out”.

Officials from the IMF, the European Commission and the ECB have been in Dublin for the last 10 days to assess the Government’s compliance with 21 conditions in the memorandum of understanding to be completed by the end of September.

The troika must be satisfied the Government is implementing the agreement in order for it to continue drawing from the €67 billion of loans the international bodies are providing over four years. The funds are drawn down in stages.

The publication of four Bills were accelerated last month to meet the troika’s demands on time.

The Competition (Amendment) Bill; the Single Pensions Bill and a Bill aimed at removing restrictions on general practitioners having access to medical card patients were all published at the end of September. The Legal Services Regulation Bill was also published recently.

The Government has also met the troika's targets including reform of the banking, legal, and medical services.

These include the merger of Anglo Irish Bank and Irish Nationwide; a comprehensive plan on strengthening supervision of credit institutions; and the introduction of the Central Bank (Supervision and Enforcement) Bill in July.

The memorandum of understanding states that if public service numbers had not been reduced sufficiently, and other savings had not been achieved, then pay cuts would have to be implemented.