A WORKING PAPER published by the IMF has found that Ireland will be able to overcome its financial difficulty if it remains committed to making itself competitive.
A paper compiled by economist Mwanza Nkusu from the IMF’s Strategy, Policy, and Review Department has found that a combination of developing the export sector and ensuring the Irish workforce is competitive can help Ireland overcome its slump.
“Enhanced competitiveness was a key factor in pulling Ireland out of its high indebtedness of the late 1980s and can play that role again,” the report says.
“The decline in domestic costs registered since the crisis, together with the associated boost to inward [foreign investment], suggests that even with the tepid external demand currently projected for the medium-term, Ireland can still register moderate exports growth and a boost to GDP and fiscal revenue.”
It points out that this is threatened by the prospect of a further shock to the global economy, where any decline in the economies of our major export partners could hurt their spending power and therefore curtail opportunities to export.
“Beyond our analysis, the confluence of high unemployment, subdued domestic demand and tight domestic financing conditions are a challenge to the growth outlook,” it adds.
It further argues that it is important for Ireland to keep its domestic prices and cost of living low, and minimise the cost of labour, as this is the only way that Ireland can directly make itself competitive given it does not have the power to manipulate the value of its currency.
“Domestic policies aimed at maintaining competitiveness, including by nurturing the knowledge economy, which underpins Ireland’s technological competitiveness, would be critical to reengineering the virtuous cycle of strong export-led economic growth and low public debt,” it says.
The working paper makes it clear that its findings should not be interpreted as official IMF policy, however.
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