THE IMF HAS warned that Ireland may need to apply further budgetary adjustments in order to meet its target of reducing the deficit to GDP to 3 per cent by 2015.

The rationale for Ireland’s recovery programme was explained in an IMF staff report published this afternoon: according to the IMF projections, the deficit will be actually 4.8 per cent of GDP by 2015. Head of the IMF’s mission to Ireland, Ajai Chopra, said that this forecast was based on the government’s measures being implemented as planned.

Chopra said:

We put in a more conservative growth assumptions to determine how we see the evolution of the deficit. What this suggests is that given our growth forecast, it will require additional measures in the medium term, say from 2013 to 2015.

However, Chopra said the IMF is satisfied with the government’s plan to make €15 billion in spending cuts and tax increases over the next four years. ”Our view is it’s the appropriate size of fiscal adjustment,” he said.

Chopra said that, because Ireland was so dependent on international investment, reneging on senior bondholders would not be an option.

He also ruled out a renegotiation on the interest rate on IMF loans by a new government.

The IMF report said that the banking sector was far too big relative to the Irish economy, and that the banks were at the heart of the country’s problems.