Fiscal Assessment Report. April 2012

Transcription

1 Fiscal Assessment Report April

2 Overview Macroeconomic assessment Budgetary assessment Assessment of fiscal stance 2

3 Macroeconomic Assessment 3

4 Growth prospects have weakened since Budget 2012 % change Budget CBI ESRI OECD EC IMF Dec-11 Jan-12 Feb-12 Nov-11 Mar-12 Mar-12 Real GDP Real GNP n.a. n.a. n.a. GDP Deflator Nominal GDP (% change)

5 Whither the Irish Economy? m Real GDP Real Domestic Demand Real GNP Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 5

6 Pattern of downward revisions for % DoF CBI ESRI EC IMF OECD Autumn 2010 Winter 2010 Spring 2011 Autumn/Summer 2011 Autumn/Winter 2011 Winter/Spring

7 Unusual uncertainty Initial output gap Speed the output gap will close Underlying trend growth rate of potential output 7

8 Recognising the Uncertainty Need for greater recognition of uncertainty in medium-term budgetary documents Error bands around forecasts Use of fan charts (showing how uncertainty increases with the forecast horizon) Importance of sensitivity/scenario analysis More discussion of downside risks 8

9 Budgetary Assessment 9

10 Budgetary projections, Budget % of GDP General Govt. Deficit Gross Debt Primary Deficit Exchequer Deficit Structural Deficit Memo items: Assumed Discretionary Fiscal Adjustment Average Interest Rate, Percent

11 Budget 2012, New measures billions 2012 VAT 0.6 Revenue Excises 0.2 Other Taxes (including Household Charge) 0.2 Total 1.0 Current 1.4 Expenditure Savings Capital 0.8 Total 2.2 New Budget Measures Total

12 VAT Projections millions Change Budget 2012 Estimate 9,730 9, IFAC Estimate using Budget Change in Nominal Personal Consumption 9,730 10, IFAC Estimate using CBI Change in Nominal Personal Consumption 9,730 10,

13 Agencies projecting 2012 target will be met % of GDP Budget 2012 IMF EC OECD ESRI Dec-11 Mar-12 Mar-12 Nov-11 Feb-12 Overall Balance Revenue n.a. Expenditure n.a. Primary Balance n.a. Debt Nominal GDP Growth (% change)

14 Simulation based on IMF growth forecast (March) % of GDP Nominal GDP Growth (IMF Mar-12) Gross Debt Primary Deficit General Government Deficit Memo Items: Assumed Fiscal Adjustment, bn Implicit Interest Rate (%)

15 Alternative growth scenarios % of GDP Budget 2012 Nom GDP 1% weaker than Budget Nom GDP 1% stronger than Budget Source: Council simulations. 15

16 Simulations of alternative growth assumptions % of GDP Budget 2012: Deficit in 2015 % GDP Growth Above/ Below Baseline % of GDP Budget 2012: Debt in % GDP Growth Above/ Below Baseline Deficit, % of GDP Debt to GDP Ratio (%) 16

17 Cumulative additional required adjustments billions Budget 2012: Baseline position in % GDP Growth Above/ -5 Below Baseline

18 Evolution of gross Government debt % of GDP Gross Debt Change in Debt Contributions to Change in Gross Debt Ratio General Government Def Stock-flow Adjustment Nominal GDP Composition of Stock-Flow Adjustment Change in Exchequer Dep Interest Adjustments Net Banking Recap Accrual Adjustments Impact of NPRF Other

19 Contributions to debt to GDP ratio % Nominal GDP Stock-flow Adjustment Interest Expenditure Promissory Note Primary Deficit excl PN Change in Gross Debt

20 Funding requirements IMF/EU Bilateral Facilities Irish Government Bonds 15.0 billions

21 billions Promissory note repayment schedule Total Payments Due Of which: Capital Of which: Interest Total Payments Due Of which: Capital Of which: Interest Total

22 Assessment of Fiscal Stance 22

23 Basic framework Trade off Supporting domestic demand versus debt sustainability/creditworthiness Key considerations Funding vulnerabilities Fragility of debt sustainability Longer-term implications of high debt Weak demand conditions 23

24 October Assessment Medium-term General Government deficit targets within range of appropriate policies IFAC case for more ambitious consolidation To reach 1 percent by

25 Fiscal Stance: SPU General Government Balance, % of GDP SPU (April 2011) Assumed Consolidation, billions SPU (April 2011)

26 IFAC Assessment: October 2011 General Government Balance, % of GDP SPU (April 2011) IFAC October 2011 Alternative Adjustment Path Assumed Consolidation, billions SPU (April 2011) IFAC October 2011 Alternative Adjustment Path

27 Post-October Developments Weaker projected growth Worsens the dilemma Concern over chasing your tail effect Government retained 8.6 percent deficit target for 2012 Some improvement in market creditworthiness 27

28 Recent developments in sovereign bond yields 28

29 Fiscal Stance: Budget 2012 General Government Balance, % of GDP SPU (April 2011) IFAC October 2011 Alternative Adjustment Path Budget 2012 (December 2011) Assumed Consolidation, billions SPU (April 2011) IFAC October 2011 Alternative Adjustment Path Budget

30 IFAC Assessment: April 2012 General Government Balance, % of GDP SPU (April 2011) IFAC October 2011 Alternative Adjustment Path Budget 2012 (December 2011) IFAC April 2012 Alternative Adjustment Path Assumed Consolidation, billions SPU (April 2011) IFAC October 2011 Alternative Adjustment Path Budget IFAC April 2012 Alternative Adjustment Path 4.2*

31 Rationales for Revised Assessment Government s medium-term fiscal stance still within the range of appropriate policies Case for more ambitious adjustment remains strong But reaching 1 percent by 2015 now looks overly ambitious Weaker growth Creditworthiness less fragile Smaller actual adjustment for 2012 Case for retaining IFAC consolidation targets for Billion in additional adjustments relative to Budget

32 Retaining flexibility while retaining credibility Uncertainty Inevitability of growth surprises Value of more growth-contingent fiscal plans Targets for cyclically adjusted deficit Targets for discretionary adjustments Importance of the nature of the growth shock 32

33 Summing up Weakening of growth prospects Significant uncertainty Meeting 8.6 percent target for 2012 will be challenging Dilemma in choosing fiscal stance Retain more ambitious targets for discretionary adjustments for But some accommodation in actual deficit to GDP ratio (subject to programme constraints) Advantages of retaining flexibility while preserving credibility 33