Delivering a more sustainable economy

Ireland’s Department of Public Expenditure and Reform’s Secretary General, Robert Watt addressed this year’s Northern Ireland Economic conference on the topic of the rapidly improving Irish economy.

As Secretary General of the Department of Public Expenditure and Reform, Robert Watt is in a better position than most to understand the serious impact the financial crisis had and how Ireland’s economic recovery is beginning to take hold. Addressing the 2015 Northern Ireland Economic conference in Belfast, Watt acknowledged the many mistakes that were made in the lead up to the crash and expressed his hope that the country was now on the right track for sustainable and consistent growth.

 Reflecting on the Republic of Ireland’s statistics from the crash make grim reading, 250,000 jobs were lost, output fell by circa 15 per cent, average disposable income for Irish families fell by 10 per cent with some experiencing a much greater decline, unemployment rose to 15 per cent and in 2009 the fiscal deficit was as high as 13.8 per cent.

The recovery process has been slow and significant legacy issues still remain. Unemployment is still over nine per cent and there are a lot of jobless households. There is still a large amount of public and private debt. Public debts are falling but still remain elevated and private debt is still high within the economy which only serves to increase Ireland’s vulnerability to slowdowns and shocks. Watt believes that one of the results of the crash is a decline in the public’s trust in public institutions and he feels it will take a long time to rebuild that trust. 

But just how did Ireland get into this position? For Watt the economy became too dependent on large capital inflows, which eventually found their way into the construction industry via the banking system. Large credit growth and excessive lending made the economy very vulnerable to economic shocks.

Crisis response 

Ireland’s response to the unprecedented fiscal crisis that ensued was severe – so severe in fact that there are very few parallels to be found in post World War 2 Europe. The consolidation effort that took place equated to around 15 per cent of Ireland’s GDP, with most of the adjustment taking place on the spending side, although revenues were also increased. 

In terms of the public sector, this was a time of massive budgetary constraints but there was also increased demand for services. Spending fell by 15 per cent between 2009 and 2014. Current spending fell 10 per cent below its peak and capital spending is down by 54 per cent.

Despite the need to make massive cuts to public expenditure, the government tried to protect core services. This resulted in a reduction of 7 per cent in health spending, social welfare spending falling by four per cent and spending on education decreasing by 6 per cent. Every other government service fell by over 30 per cent. “Government departments faced enormous cuts but the sky didn’t fall in,” said Watt. “The public sector pay bill fell by 13 per cent as the focus shifted to reducing unit costs. Average gardai, teachers and nurses saw their gross pay reduced by 10-15 per cent and with the introduction of the Universal Social Charge and the increase in taxes, their real term reduction was more than that.”

With regards to lessons learnt from the crisis, Watt believes that he has learnt two valuable lessons from responding to the crisis. The first of which he claims, is to act decisively to implement positive structural change. Secondly, Watt feels that the impact of downsizing the state and cutting back public spending is not nearly as bad as some may expect and the impact of consolidation policies are sometimes exaggerated.


Watt believes the economy is improving now that the recovery has started to take hold and the indicators are very positive. The latest numbers from the Central Statistics Office show that GDP is above its 2007 peak – although there are some measurement issues with the national accounts data.

However, as Watt states, the Irish economy looks very different now to how it did in 2007. “Our exports are now 40 per cent higher than in 2007, although we need to be cautious about some of the data,” said Watt. “Domestic demand remains lower than at peak, while investment still has a long way to go to be anywhere close to pre-crisis peak though personal consumption is increasing. Ultimately, the economy is different than it was and we believe that the recovery is more sustainable.” 

Watt believes there are two main reasons for this growth. Firstly, that the government approached the task at hand in the right way by addressing the banking challenges and the fiscal deficit. This has resulted in the lowest ever funded cost of Ireland’s 15 year bonds with the price now at just 1.65 per cent. Secondly, as an exporter, the Euro depreciation has played a significant part in boosting trade with non-Eurozone partners like the United Kingdom and the United Sates who make up 50 per cent of non-EU trade, along with the fall in the price of fuel which has put more money in the pockets of Irish citizens. 

“Government departments faced enormous cuts but the sky didn’t fall in” 


Of course as with any growing economy, there are risks that threaten its growth and for Ireland these include exchange rate developments, the importance of ensuring the workforce remains skilled to meet the demands of the market and housing problems. Overall, Watt believes that Ireland has the potential to grow by three per cent per year over the medium-term. Watt feels that this is possible provided the government focuses on what it does best and focuses on stable policies. 

In summary Watt describes that last eight years an “incredible journey” that has witnessed very significant reductions in income and employment but over the last number of years a very robust recovery has evolved and believes that if conditions remain favourable Ireland “will be able to grow providing more employment for our people here at home.”

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