The European Commission has praised the Government's stability programme, or budget plan, for 2004-06, predicting that Ireland's budget deficit would remain well below 3 per cent of GDP, the limit laid down in the Stability and Growth Pact.
Recommending that EU finance ministers accept Ireland's stability programme next month, the Economic and Monetary Affairs Commissioner, Mr Pedro Solbes, praised the plan as realistic.
"The new Irish stability programme update is based on a realistic macro-economic scenario; and it seems that there is a sufficient safety margin against breaching the 3 per cent of GDP reference value for the deficit with normal macroeconomic fluctuations throughout the programme period," he said.
The Commission expects economic growth to return gradually to about 5 per cent towards the end of 2005 and that the budget deficit will hover around 1 per cent of GDP throughout the next few years.
"General government debt is estimated to have amounted to one-third of GDP in 2003, the second lowest level in the EU. Over the period 2004-06, both the primary balance and the interaction between the average interest rate and GDP growth continue to contribute to lowering the debt ratio, but this is broadly offset by sizeable stock-flow adjustments.
"The latter largely reflect the impact of the National Pensions Reserve Fund, which was set up to pre-fund future pensions liabilities and receives 1 per cent of GNP annually from general government resources.
"Without the accumulation of assets in this fund, the debt ratio would be falling throughout the period," the Commission said.
The Commission concludes that Ireland is on a sustainable economic path, but warns of possible risks in the longer term.
"The budgetary strategy outlined in the programme is based on the accumulation of reserve funds to pay future pension liabilities, further pension reform and measures to increase efficiency in the health care sector," the Commission said.
