The International Monetary Fund (IMF) has become the latest in a long line of economic commentators to display edginess about the state of the Republic's public finances.

Although they observed that the economy appeared to have weathered the global slowdown relatively well, the fund's directors have issued a warning on public spending, which they consider to have the potential to undermine the State's budgetary position.

They have described a "sharp deterioration" in the public finances, language that would have seemed distinctly out of place in the Republic's economic context until very recently.

Public spending has been a hot topic for the general population since May's election, and for economic commentators for many months. Repeated calls for restraint have been voiced, with predictions of looming deficits of up to €1.5 billion adding fuel to an already raging fire.

The positive news is that the IMF has come up with a sort of a plan to address the issue. The plan, which was drawn up after an IMF team visited the various powers-that-be in Dublin in May, seeks restraint.

This restraint needs to come within a formal framework, the IMF believes, so that Government policies are easier to predict. The framework would include multi-year spending limits as well as overall fiscal self-control, according to the analysis. Safeguards to protect capital spending from budget pressures would also be part of the deal.

Employers group IBEC said it agreed on the need to protect capital spending from budgetary pressures.

Labour's spokesman on finance, Mr Brendan Howlin, yesterday challenged this, rejecting what he saw as "the implication that current spending should be cut back to finance capital spending".

Mr Howlin said that that this "horse has already bolted", and argued that the IMF report underlined the need to get the National Development Plan back on track.

"Now is the time to get the National Development Plan really moving when the economy is in a downturn and the State has some chance of getting value for money," Mr Howlin added.

The value-for-money side of this advice also appears to be close to the IMF's heart, since it advises the Government to develop a set of strict parameters beyond which public spending should not pass.

It speaks of "rigorous value-for-money criteria, with clearly defined, monitorable outputs". It also welcomes the use of public-private partnerships and encourages further private-sector involvement in the provision of public services.

If a scenario does emerge where additional spending is needed, the necessary cash should not come from raised taxes, according to the IMF. Instead, it has come out in favour of widening the tax base or, in other words, identifying new ways of taxing people and companies.

A number of economic commentators yesterday described such a distinction as meaningless, arguing that the same people would be hit, regardless of how the money was raised. In general, however, most interested observers welcomed the IMF's comments, even the Minister for Finance, Mr McCreevy, who said he was pleased with the "input".

Mr Colin Hunt, chief economist with Goodbody Stockbrokers, said the IMF analysis contained "very sensible remarks", noting in particular that the fund's directors appeared "less than enthusiastic" about a new partnership deal.

In this context, the analysis urges "a cautious approach in phasing in pay increases due under benchmarking".

Mr Austin Hughes, chief economist with IIB Bank, said he was happy to see the IMF taking a medium-term perspective in its analysis of public-expenditure issues.

"This is not something that will end this year," said Mr Hughes.