The Washington-based lender said the Government should stick with the planned adjustment to protect “hard won gains” rather than simply aim to meet next year’s crucial EU deficit target
The call for another austerity budget was also made by the Fiscal Advisory Council earlier this week, while the European Commission said last week that it wants more than the €2bn in cuts and tax hikes.
In its first post-bailout review, the IMF said the Irish economy is beginning its recovery from crisis but stressed determined efforts were “vital to sustain growth”.
“Unemployment is still high even after a significant decline in recent years, and public and private debt burdens remain a source of risk to the strength and durability of the recovery, in part as very high NPLs (non-performing loans) could weigh on a revival of lending in the medium term,” it said.
The IMF said the Government should impose an adjustment of about 1.25pc of gross domestic product.
The Central Statistics Office estimated GDP last year at €162bn, with 1.25pc of that roughly €2bn.
“Anchoring the quantum of adjustment rather than the headline deficit would also avoid procyclical responses to revisions in growth projections,” the IMF report said.
The report also makes reference to the recent election and blames the fall in support for the Coalition on the “as yet” limited benefits of austerity for people.
The IMF also noted Eamon Gilmore’s resignation as Labour leader, and said Joan Burton had indicated she would stick to the budget targets for 2015.
Ms Burton previously told this newspaper that the €2bn adjustment would be neither necessary nor desirable.
To have a balanced budget as planned by 2018, the IMF said discretionary measures would need to be a contributor to adjustment in addition to restraint in welfare and pay.
The IMF said growth is estimated at about 1.7pc this year – fractionally less than the Department of Finance’s estimate of 2.1pc – and firming to almost 2.5pc in 2015.
It said revenue performance in the first five months of the year had been solid, and said authorities had managed to keep spending largely under control despite pressure in Health.
Gross public debt is expected to ease to 121.7pc of GDP by the end of the year.
Household debt means savings rates are expected to remain high, with slow recovery in personal spending relying on employment and income growth and declining drag from austerity, it said.
The number of bad loans in the banks remain high at 27pc at the end of last year, it said, and called for the majority of mortgages in arrears to be resolved by the end of 2014.