Ireland hopes to put some proceeds from state asset sales into creating a new state bank and investment programme, to help keep the economy on track to grow by three percent over the medium term, the country’s spending minister said in September.
Ireland is trying to convince its EU/IMF/ECB creditors to allow it to reinvest the proceeds, while the troika of lenders wants Dublin to commit to substantially more sales than its €2bn target, with the IMF urging it to go as far as €5bn.
The minister, Brendan Howlin, said the funds could be used to set up an investment bank, which his Labour Party sees as a source of alternative funding for capital projects; while the senior government partners of the ‘New Era’ project, Fine Gael, want to invest in energy, broadband and information technology.
“These are important elements for our recovery strategy that we are going to put in place,” Howlin told a parliamentary committee, referring to the two projects proposed in the run-up to February’s election.
“It’s a logic we have to convince our European partners and IMF partners to buy into,” he said. “Exactly what will be allowed is a matter for negotiation and the next round will be critical to see what flexibilities we can get.”
Howlin said Ireland still expected to generate economic growth of around three percent over the medium term, despite flagging a likely downgrade of its gross domestic product forecast for next year.
Ireland’s EU/IMF creditors expect GDP growth to return to around 0.5 percent this year, but the government has said it will have to downgrade its 2012 forecast, currently at 2.5 percent, to compensate for a weaker global outlook.
Dublin will need growth to accelerate to at least three percent thereafter if it is to cut its budget deficit to below three percent by 2015 (it is forecast to be 10 percent this year), while at the same time slowing down an unprecedented austerity drive.
“There is a broad expectation – from the Department of Finance, the IMF and European Commission, and the private sector consensus – that real GDP will… expand by an average of around three percent per annum over the medium term,” he said.
“There are risks, of course, particularly in the current environment, where uncertainty surrounding the global outlook is high,” he said, adding that Dublin needs to ensure it does not stifle growth when deciding the level of budgetary adjustments.
Can’t change overnight
Howlin, whose department for public expenditure and reform was introduced following February’s change of government, is reviewing all public sector spending.
He is also charged with an agreement the previous administration struck with trade unions, which seeks to instigate voluntary redundancies and longer working hours in return for a promise not to cut public sector pay again or force job cuts.
He told fellow lawmakers that the implementation body overseeing the “Croke Park deal” has been meeting with top management from each sector in recent weeks to discuss how the process can be progressed with more urgency.
The deal envisages the number of public sector workers falling a further eight percent by 2015, and with generous retirement packages lapsing next February, Howlin said there would be very significant reduction in numbers over the next five months if all enquiries received so far are acted upon.
Howlin also said that he would seek to introduce a new single pension scheme this month to simplify the management of a “very substantial” €2.9bn annual pension bill – but that it would only apply to new entrants to the public sector.
“The public service is a patchwork quilt of individual structures,” he said. “Headlines in newspapers ire people but these are things that have been there for decades. You can’t change it all overnight.”
