The International Monetary Fund has warned that the Government may have to introduce further budget adjustments if it is to meet its target of reducing the deficit to 3% of GDP by 2015.

The IMF this afternoon published a staff report explaining the rationale for the recovery programme which it negotiated with the Irish Government.

In the report, it forecasts that the deficit by 2015 will be 4.8% of GDP, rather than the 3% in the Government's target.

Speaking during a conference call this afternoon, the head of the IMF's mission to Ireland Ajai Chopra said its forecast of 4.8% assumed that the Government's measures would be implemented as stated, and assumed no change in policy after 2014.

He said that given their growth forecasts, reaching 3% in 2015 would require additional measures in the medium term.

He said the Government had made a bold start by frontloading the adjustment in 2011.

However, he added that it would be premature to put a figure on the extent of the fiscal adjustment that might be required to meet the 2015 target.

He also said that the IMF agreed with the view of Finance Minister Brian Lenihan that there was no way a country whose banks were so dependent on international investors could unilaterally renege on senior bondholders, as the systemic impact of doing so would be too great.

Mr Chopra also said that stress tests on banks would have to look at the possible implications for mortgage and tracker loan books of any future interest rate rises.

He also ruled out renegotiation of the interest rate on IMF loans by any incoming Government.

Mr Chopra was also asked whether loans from the IMF carried any conditions about bonuses for bank staff.

He said the programme was designed to ensure banks were sufficiently well capitalised, and there were a number of ways of doing this.

Banks at 'heart' of Ireland problems

The IMF report says the banking sector is 'over-sized' relative to the Irish economy and holds a large number of vulnerable assets.

The IMF report says the banking problems have eroded the State's credibility 'at a gathering pace'. It adds that the banking crisis, low economic growth and concerns about the public finances are feeding on each other.

The report by IMF staff says the three-year programme involving it and the EU aims to restore the banking system to health, by restructuring it fundamentally and reducing its size. It also aims to lower the Budget deficit and reform the economy to improve its potential for growth.

The IMF says the threat to other eurozone countries from Ireland's problems is significant, as markets believe other countries face similar vulnerabilities.

The report also notes that the IMF mission met Opposition parties.

'The main ones indicated broad support for the programme objectives, but indicated their interest in revisiting some of the policy approaches to achieve these objectives,' it says.

The IMF says growth from 2012 to 2015 will remain modest at an average of 2.75% a year, but even this is subject to risks, particularly from the effect of spending cuts and tax measures on spending.

Swap facility unveiled

Meanwhile, the European Central Bank and the Bank of England have unveiled a £10bn swap facility for Ireland.

The ECB said it had signed the swap agreement to cover temporary sterling liquidity needs in the Irish banking system. The agreement expires at the end of September 2011.

'The agreement allows pounds sterling to be made available to the Central Bank of Ireland as a precautionary measure, for the purpose of meeting any temporary liquidity needs of the banking system in that currency,' the ECB said.