IMF cuts Irish outlook, urges more asset sales

DUBLIN, Sept 7 Wed Sep 7, 2011 11:00am EDT

DUBLIN, Sept 7 (Reuters) - The International Monetary Fund cut its growth forecasts for Ireland on Wednesday due to a worsening outlook for global growth and urged the government to target five billion euros in asset sales up from the two billion euros currently earmarked.

In its latest staff report on Ireland, the IMF also said Euro zone leaders should consider additional changes to their temporary rescue fund to help Ireland regain market access.

Ireland's borrowing costs have fallen sharply since European leaders agreed in late July to cut the cost of its 85 billion euros bailout package but the IMF warned that the risks to Dublin returning to debt markets remained significant.

"Notwithstanding the government's determination to implement the program, Ireland's prospects are dependant on the success of broader efforts to restore financial stability across the euro area," the IMF said in its report.

The Washington-based organisation said euro zone leaders should swiftly implement changes already agreed to the bloc's rescue fund, the EFSF, including the ability to provide precautionary financing, and consider options for additional flexibility.

"It would therefore be valuable for the EFSF to have additional flexibility in a form that would help overcome these hurdles to Ireland regaining market access at an early stage."

Ireland's government wants to make a tentative return to debt markets next year, possibly through the issue of short-term maturities, before making a full return in 2013, when its current bailout is scheduled to run out.

The IMF said Dublin was on track to meet its fiscal goals this year, was ahead of schedule in restructuring its banking sector, but cut its growth outlook for the country for 2011 and 2012 due to the risk of weaker export growth.

"The growth outlook for key trading partners-the euro area, the U.S. and the U.K.-has worsened substantially."

The IMF's mission chief for Ireland Craig Beaumont declined to comment on whether the IMF had also cut its growth outlook for the United States, the UK and the euro zone.

The IMF estimates Ireland's Gross Domestic Product (GDP) will expand by 0.4 percent this year compared to 0.6 percent in the previous staff report in May and 1.5 percent next year compared to 1.9 percent previously.

Factoring in the cut to growth, Beaumont said Ireland's debt to GDP ratio to peak would peak at around 119 percent of GDP in 2013 compared to 118 percent estimated before the IMF downgraded its growth outlook.

Beaumont said the 1 percentage point worsening in the debt to GDP dynamics would be more than compensated for by the cut in the cost of Ireland's European loans.

The IMF has estimated that cut would reduce interest payments for Ireland by about three percent of GDP cumulatively over 2011-2016.

The IMF also said Ireland would need a robust legal framework if the government was to try and impose losses on senior bonds with a value of 3.5 billion euros in shuttered lenders Anglo Irish Bank and Irish Nationwide Building Society .

The ECB is opposed to such burden-sharing for fear of the contagion risk and Dublin has said it would not move against the bondholders without the approval of Frankfurt. (Reporting by Carmel Crimmins)

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