The European Commission has declared the State's finances to be in good health and spending plans in compliance with EU budgetary rules.
Under EU rules each member state is required to submit a detailed medium term spending plan for compliance with the Stability and Growth Pact.
The Commission said Ireland's fiscal policy and spending projections "largely complies" with the rules of the pact.
The Department of Finance forecasts that on average, the budget deficit will be amount to 1.2 per cent of GDP in the period to the end of 2006. The Commission noted that these forecasts tend to be conservative implying a more positive outcome is possible.
Ireland's general government balance which is used by the EU is currently in deficit to the tune of 0.1 per cent of GDP, comfortably inside the EU 3 per cent limit.
The deficit is expected to deteriorate this year as the one-off gain in 2003 from the rescheduling of CGT payments falls out of the finances.
The Commission predicts that the objective of a close-to-balance position will "probably" be achieved by the end of the programme period risks from a shock remain.
Ireland's debt which includes bonds and long term loans stands at around 33 per cent of GDP, the second lowest level in the EU. Without the accumulation of assets in the National Pensions Reserve Fund, which was set up to pre-fund future pensions liabilities and receives 1% of GNP annually from general government resources, the debt ratio would be falling throughout the period.
The Commission concluded: "Regarding the long-term sustainability of the public finances, on the basis of current policies, there is a risk of budgetary imbalances emerging in the future due to an ageing population but the possible financing gap can be easily covered."