THE STATE’S FISCAL watchdog has warned the Government to stick to its planned €2 billion adjustment in next year’s budget.

The Irish Fiscal Advisory Council (IFAC) issued the call this morning as it launched its latest Fiscal Assessment Report.

While it acknowledged that the Government has made significant gains, it warned against pulling the trigger too early and easing off austerity before the danger of an economic relapse has fully passed.

“The borrowing capacity of the State has been restored, growth has resumed and Ireland successfully exited the EU-IMF assistance programme on schedule.”

But a number of challenges remain. These centre on risks surrounding growth prospects and the difficulties in delivering a sustained period of expenditure restraint in the face of demand pressures on public services.

IFAC said that the State still has to tackle risks around the sustainability of its debt position by consolidating progress made to date on the debt-to-GDP ratio.

That indicator must fall to 3% of GDP by the time Ireland exits an oversight mechanism known as the Excessive Deficit Procedure next year.

In the light of these risks to hitting the deficit target, the €2 billion target should be adhered to, IFAC chairman John McHale said.

“Anyone who expresses certainty that based on an adjustment of less than €2 billion that we will meet that target is underestimating the uncertainties that exist.”

The call to stick to the budget target contrasts with predictions from the ESRI that the full adjustment can be avoided issued in recent months.

McHale said that the worst of austerity will be over in 2015.

2016 overshoot

IFAC also said that the Government’s adjustment plans for the period after 2015 could be more than is in fact being demanded of Ireland by Europe, raising the possibility of a greater easing-off of austerity than had been projected in two year’s time.

It called on the Government to explain why it had chosen targets that “appear to go beyond the minimum requirements of the new fiscal framework”.

McHale urged Government to plan cutbacks carefully to avoid wreaking havoc with services.

“It’s very important to plan those expenditure reductions to ensure that very significant damages aren’t done to the public services.”

Read: Fiscal council finds ‘wiggle room’ on Budget – but wants full cuts>

Read: €2 billion budget cuts can be avoided* says ESRI>