Speech by Minister for Finance, Brian Lenihan, TD at the Launch of OECD Ireland Survey by Mr Angel Gurria, Secretary General of the OECD at Department of Finance, Dublin 4 November 2009
Thank you Secretary General Gurria. We greatly appreciative that you have come here to Dublin this morning to launch the OECD’s latest Economic Survey of Ireland and I am very pleased to receive it.
Before I talk about the Economic Survey I want to acknowledge the excellent and valuable work of the OECD. It is a unique organisation which brings together the governments of 30 democratic countries and provides a forum where those governments can compare policy experiences, seek answers to common problems, identify good practice and coordinate domestic and international policies. For more than 40 years, the OECD has been one of the world's largest and most reliable sources of comparable statistics and economic and social data. As well as collecting data, the OECD monitors trends, analyses and forecasts economic developments and researches social changes or evolving patterns in areas such as trade, environment, technology, taxation and more. The OECD is well placed to respond to new and important developments and concerns such as corporate governance, information technology and the challenges of an ageing population.
The peer review process, through which the economic performance of individual countries is assessed, is at the heart of the OECD’s effectiveness. The Economic and Development Review Committee is charged with the examination of the economic position of member countries, in the light of the experience and lessons learnt in other countries. The membership of this committee consists of an expert representative from each OECD country plus the European Commission. An Economic Survey is published every 18 months to two years for each OECD country. It identifies the main economic challenges faced by the country and analyses policy options to meet them. The focus is on the macroeconomic and structural policies and key challenges that could boost economic performance on a sustainable basis. The previous Economic Survey of Ireland was issued in April 2008.
In February this year, the team from the OECD Secretariat visited Ireland and met a wide range of government officials, academics, social partners and others to collect information. In May the team returned on a policy mission to discuss the secretariat’s tentative conclusions with me and with other policy makers, with senior government officials, and with the Central Bank.
The draft Economic Survey was prepared by the OECD Secretariat and I wish to commend Mr Patrick Lenain and Mr Sebastian Barnes and their team who were responsible for this task. The examination of the Economic Survey of Ireland at the Economic and Development Review Committee took place over a full day in September 2009. A small delegation of officials from my Department and the Central Bank participated. The final survey reflects the OECD countries’ joint conclusions, which are being published under the responsibility of the whole committee.
The focus of this Survey is on restoring macroeconomic and financial stability, rebuilding public finances, with special chapters on the labour market and boosting competitiveness. The OECD Survey is fair and balanced and I welcome its assessment and recommendations.
As the Survey acknowledges, our economy is currently experiencing a severe contraction due to the combined effects of the domestic economic slowdown, including the very harsh fall-out from the decline in the construction sector, and the unfavourable international environment. This domestic shock has had widespread consequences for employment, consumer demand, and economic sentiment and indeed, all of this has fed through to a serious deterioration in the public finances. In addition, as a globally integrated economy the deterioration in the economic environment in our main trading partners is being exacerbated by recent, unfavourable exchange rate movements.
There are indications that the worst phase of economic contraction may be behind us. However, in a continuation of the recession which commenced in 2008, Ireland’s GDP is forecast to contract by more than 7 per cent this year. From a global economic perspective there have also been some early signs of optimism in key regions. I note that the US economy returned to growth in the third quarter. However, we should not be complacent about the significant challenges we face, not least because we do not expect any upturn in the Irish economy until the second half of next year, with the economy not expected to move out of recession until 2011. The most important short-term measures being implemented by the Government include stabilising the public finances and restoring confidence in our banking system.
The economic deterioration is placing severe pressure on the public finances. The Government is committed to stabilising and restoring sustainability to them. We have implemented revenue-raising and expenditure control measures equivalent to approximately 5 per cent of GDP this year. Recently published reports by the Special Group on Public Service Numbers and Expenditure Programmes and the Commission on Taxation will feed into future Government deliberations in this regard. It is important that this process continue with the stabilisation of the deficit in 2010 and this is the Government’s aim. This will require difficult, but necessary, decisions to be made in Budget 2010, which will be presented to the Dáil on 9th December.
We remain an open, pro-enterprise economy with membership of the eurozone and access to a large single market of 500 million people. We are pursuing policies to facilitate the development of a Smart and Green economy. In this regard, I know, Secretary General Gurria, that later today you are launching the conclusions and recommendations of the second OECD Environmental Performance Review of Ireland. From a medium and longer term perspective, our future pattern of growth will, by necessity, be predicated on a more sustainable export-led economic model. This will require a continued focus on improving our competitiveness. Our economy remains flexible and resilient and this will stand us in good stead as we adjust to the changed circumstances. Our price level measured on a harmonised basis has experienced the fastest rate of annual decrease in the Euro area for a number of months. There is evidence that nominal wages in the private sector are falling and public sector wages have been subject to an average 7 per cent levy. Our labour force continues to be highly-skilled and flexible and we have made significant investment in education at all levels in order to ensure we will continue to have the skills demanded by our increasingly knowledge-intensive economy.
As regards fiscal consolidation, the OECD Survey states that it is appropriate that this process has already begun, and, that very substantial further measures will be required. The survey goes on to support the view that fiscal adjustment should take place within a credible multi-year framework as the Government has outlined. It also states that there is scope for efficiency-improving measures, focusing on improving value for money and modernising the public service.
In relation to the financial sector, the OECD believes that the priority is to return the banking sector to good health. It recommends that NAMA should be implemented as soon as possible.
The Government moved decisively to ensure confidence in the financial system in Ireland by announcing a guarantee arrangement for depositors and lenders to Irish credit institutions. That was the first step on the path to stabilising the banking system in this country. We are all agreed that this is one of the key requirements for our economic recovery, which will serve the needs of the wider economy. In the absence of a properly functioning banking system, economic recovery will not happen.
NAMA is a crucial element of our economic recovery process. It builds on the progress made by Government to date. The objective of NAMA is to strengthen the banks’ balance sheets which will considerably reduce uncertainty over bad debts and as a consequence facilitate the flow of credit on a commercial basis to the real economy, to protect and grow employment while also protecting the interest of taxpayers. I firmly believe that the establishment of NAMA is the most cost effective option from the taxpayer’s perspective to ensure a properly functioning banking sector.
The establishment of NAMA, together with the initiatives we are pursuing to restore competitiveness and put the public finances in order, will help position Ireland to take the earliest possible advantage of the economic recovery that is beginning to take hold in the EU and in the rest of the world.
Once again, Secretary General Gurria, I wish to thank you for being here with us this morning and I hope you enjoy the rest of your visit today. Finally, I want to thank you, the OECD Secretariat and the Economic and Development Review Committee for producing the OECD Economic Survey of Ireland, which presents valuable and insightful analyses of our present economic, fiscal and financial problems, as well as setting out what is being done to address them and what more needs to be done.
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