ESRI Predicts Irish Debt Crisis Is Less Severe

Economists say that Ireland's debt crisis could be less severe than originally estimated and gross debt will peak earlier than expected.

A new report by the Economic and Social Research Institute (ESRI) has revealed the decision to reduce interest costs on the EU-IMF bail out fund will see Ireland’s debt to gross domestic product (GDP) ratio becoming significantly lower than expected.

In addition the ESRI predict the budget deficit could fall below 3% in just three years time. Ireland's debt recovery will be further helped by lower than predicted bank recapitalisation costs.

Meanwhile the current programme of cuts will be sufficient to almost eliminate the primary deficit – Ireland’s borrowing requirement minus its debt interest repayments – by 2013, according to John FitzGerald and Ide Kearney of the ESRI.

In its new analysis, the ESRI says the gross-debt-to-GDP ratio should now peak at about 113% of GDP in two years' time.

Before the deal done at the EU summit in July, the Government and the EU-IMF forecasted a peak of between 118% and 121%.

The ESRI also notes that Ireland will have a large cash balance in 2013 and, taking this into account the net debt ratio will peak at 103% of GDP. This is lower than the peak net debt/GDP ratio experienced during Ireland’s last major fiscal crisis in 1987.

The lower costs of the bailout deal mean that getting the deficit below 3% by 2015 is now a target that seems achievable. Assuming the austerity programme is implemented in full and there is decent growth in the economy, it is a target that Ireland may even outperform.

The article sets out the numbers on Ireland's path out of its debt, rejecting the suggestion that it is an unsustainable burden.

(LB/CD)