The Recovery in the Public Finances in Ireland following the Financial Crisis

Abstract

The turnaround in the fiscal position in Ireland over the past 6-7 years has been dramatic. From double-digit deficits, a rapidly rising debt ratio and entry into an EU/IMF support programme, by end 2015, the General Government deficit and debt ratios were down to 1.9 and 78.6 per cent of GDP, respectively – the latter falling by 40 percentage points in 3 years. This culminated in a successful exit from both the programme and the Excessive Deficit Procedure (EDP). Much of this progress reflects the hard choices made (beginning in 2008) to correct the public finances through a series of consolidation measures totalling €30 billion. The key role played by interest costs in facilitating this turnaround is however often overlooked as are a number of other well timed factors including data revisions and stronger than expected revenues. This paper takes a comprehensive look back at these factors and their roles in facilitating the exit from the EDP while also enabling higher levels of spending.