BUDGET DEFICIT:IN ITS second major report published yesterday, the IMF forecast that Ireland would now hit its budget deficit target in 2012.
In its Fiscal Monitor report, the fund forecast that Ireland will meet its budget deficit target for next year – of 8.6 per cent of gross domestic product. That target is a condition of its bailout plan. Just three weeks ago, the IMF forecast a deficit of 8.9 per cent in 2012.
Of the three euro area economies being bailed out, Ireland is the most dependent on foreign funding, the report notes. Of total outstanding government bonds, 83 per cent are held by nonresidents (this includes the European Central Bank). In Greece and Portugal, the percentage is 65 and 63 per cent respectively.
Irish financial institutions hold almost all of the Irish government bonds owned by Irish residents.
The report notes that internationally, state support for banks has been “very limited since April 2011, except for Ireland, where domestic banks have received a capital injection of 11 per cent of GDP.”
Total net direct support for the banking system now stands at 38 per cent of GDP, according to the report. In Spain, where a similar property crash occurred, the cost has been a fraction of this, totalling 2.1 per cent of GDP to date. The different costs reflect far fewer bad loans to property developers in Spain.
Germany had the second highest costs, at 12.4 per cent of GDP. More than two-thirds of those costs were accounted for by Hypo Real Estate, most of whose losses came from Depfa Bank. Depfa was an Irish registered bank until Hypo Real Estate bought it shortly before the financial crisis erupted in 2008.
Elsewhere the report reiterated its nuanced stance of budgetary adjustments globally, advocating immediate tightening for countries that have lost market confidence, but warning of the dangers of tightening in those countries where governments can still borrow cheaply.
The IMF also intervened in the polarising fiscal debate in the US, arguing that higher tax revenue must form part of the solution. A large constituency in that country rejects any revenue raising measures as a means of consolidation, believing that expenditure cuts should be relied upon exclusively.
Long-standing suspicions about China’s public debt figures have been confirmed by the report. Revised data from the Chinese authorities show that the country’s public debt is 34 per cent of GDP, double the size previously reported. This does not include local government debt and is thus likely still to be an underestimate. China’s debt level is “in fact close to the average” among developing countries, according to the IMF.
