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Government urged to manage finances prudently amid economic uncertainties

about 8 hours ago

Joe Brennan

The Government plans to sell 25% of AIB. Photograph: Bloomberg





State officials have acknowledged that the prospect of the Government selling a stake in AIB on the open market in the first half of next year may be in jeopardy if markets remain unsettled, according to the European Commission.

In its latest surveillance report on Ireland following the bailout programme, the commission said that “authorities indicated that unfavourable market developments could push back the planned sale of a 25 per cent stake in AIB.”

The report, published on Monday, clarified in footnotes that factors such as a lack of investor appetite due to low returns in the broader banking sector, as well as uncertainties due to Brexit may affect the timing of the stake sale.

Minister for Finance Michael Noonan has said that proceeds from the sale of holdings in AIB, which cost taxpayers almost €21 billion to rescue during the financial crisis, would be used to repay general government debt.

This debt level stood at 79 per cent of the size of the economy at the end of 2015, helped by a surprise 26 per cent surge in gross domestic product (GDP) last year, driven by the activities of multinational companies with operations in Ireland.

Mortgage cap

The commission said legislative proposals to enable the Central Bank to cap mortgage interest rates “could have a negative impact on banks’ fragile profitability and potentially discourage new entrants into the market.”

A Fianna Fáil Bill on the matter was passed by the Dáil in May. However, it has yet to pass through a number of legislative stages in the Oireachtas and be enacted.

Meanwhile, the commission has urged the Government to manage the public finances prudently, particularly as there is “considerable uncertainty” about future economic growth and the impact of Brexit.

“The result of the UK referendum on EU membership represents an adverse external shock, but real GDP in Ireland is still expected to grow at robust rates this year and next,” the report said. “ However, the full effects of the UK ‘leave’ vote will only emerge over time and will mainly depend on the outcome of the UK-EU negotiations. This creates economic uncertainty for all members tates, but particularly for Ireland.”


It said that recent track record of Irish tax revenues beating forecasts “may not prove durable,” as some of the income, particularly from multinationals, “remains volatile and subject to abrupt decisions by a small number” of companies.