Additional reporting by Newstalk's Political Correspondent Páraic Gallagher

The International Monetary Fund (IMF) has again called on Europe’s bailout fund to pay for the cost of rescuing Irish banks.

The IMF, in its latest assessment of the €87 billion bailout, says getting the European Stability Mechanism (ESM) to recapitalise banks was the best way to ensure Ireland exited the international rescue plan at the end of this year.

Last June the European Union vowed to break the link of governments bailing out failing banks. That was taken as a sign that the direct cost of rescuing AIB, Bank of Ireland and Permanent TSB could be recouped from the ESM. But since then there has been little movement from the European authorities.

“A durable exit from drawing on official support cannot be assured without timely and forceful delivery of European pledges,” the IMF said today after releasing its ninth review of the bailout.

The IMF said February's agreement to liquidate the Irish Bank Resolution Corporation, formerly Anglo Irish Bank, and replace the promissory note arrangement with government bonds, will do little in the long-term to help the economy.

But it said getting bank rescue bill reduced by “direct bank recapitalisation by the ESM” was the best way to make sure Ireland’s debt burden was sustainable.

Economy to grow by about 1%

The Washington-based organisation said Ireland’s economy will grow by about 1% this year – a figure it describes as “sluggish” – and that the “outlook for gradual recovery over the medium term remains highly uncertain.”

The IMF also says close scrutiny of the finances of the Health Service Executive needs to be maintained if the budget targets for the year are to be met. The government has moved to getting monthly briefings from the HSE and the Department of Health to keep track of its spending.

The report also calls for more action to bring down the rate of long-term unemployment, urging private sector organisations to get involved in the retraining workers.

And it says banks need to move more quickly to deal with the mortgage arrears crisis and it said they will also have to restructure non-performing loans given to small businesses.

Key Points from the Staff Report:

• Strong policy implementation has continued and positive results are emerging.
• However, growth is expected to remain sluggish in 2013 and the outlook for gradual recovery over the medium term remains highly uncertain.
• A sharp improvement in dealing with non-performing loans is critical to strengthen prospects for recovery.
• Ireland’s strong track record of budget execution must be maintained in 2013 and building on the recent strengthening of the medium-term budget framework will support durable exit.
• Long-term unemployed job seekers must increasingly be the focus of activation policies to prevent a rise in structural unemployment.
• Even with continued strong policy implementation, a durable exit from drawing on official support cannot be assured without timely and forceful delivery of European pledges.

Last month IMF Managing Director Christine Lagarde visited Dublin.

Video courtesy of The Institute for International and European Affairs