WHEN THE National Development Plan (NDP) was launched in January 2007, full implementation was predicated on an annual average growth rate of 4 per cent over a seven-year period to 2013. That is no longer achievable given the global financial and economic crisis and the perilous state of the public finances.
The Irish economy contracted by an estimated 2 per cent last year and will decline by 5 per cent or more in 2009. No one did – and perhaps no one could – predict the speed or the severity of a downturn that has left the Government struggling to raise some €4 billion in next month’s supplementary budget to keep borrowing below 10 per cent of GDP in 2009.
The State’s ability to fund the €184 billion NDP was based on the benign assumption of high growth and stable public finances over that period. But all has changed and some re-ordering of its investment priorities is needed. Colm McCarthy, chairman of the Government’s expenditure review committee (“An Bord Snip”), has outlined in principle how this might be done. The exchequer capital programme, he suggests, could be divided into three groups: projects that should go ahead, assuming they can be financed; projects that should be dropped, because they represent poor economic value; and projects that should be deferred temporarily, but not permanently cancelled. A contracting economy means some projects are no longer needed and other projects are unaffordable.
The Government, as author of the NDP, must now decide its priorities. Already speculation has centred on whether the Metro North project to Dublin airport or the reopening of the Western rail corridor make economic sense. Interest groups, concerned at what financial measures next month’s budget may contain, are lobbying to influence its contents. The Construction Industry Federation (CIF) held an emergency meeting earlier this week to agree a plan for submission to Government. The CIF represents a sector which was the greatest beneficiary of the boom and has become the biggest casualty of the recession. In the past 15 months more than 100,000 jobs have been lost, according to the CIF director general Tom Parlon.
The NDP’s investment programme is designed in part to remove some infrastructural deficits in the economy in order to raise competitiveness and boost economic growth. The size of the competitiveness challenge has been underlined – again – by a recent survey of 14 EU economies, the 2009 European growth and jobs indicator. It found Ireland has dropped from fourth to 13th place in one year, just ahead of Italy. The survey noted that economic growth, productivity and the public finances had all “deteriorated precipitously” and greatly contributed to Ireland’s loss of competitiveness.
As the Government reassesses the national plan in the context of next month’s supplementary budget, the need to stabilise the public finances has priority. But the measures taken to do so through tax increases and spending cuts should be designed, where possible, to restore national competitiveness – not damage it further.