The International Monetary Fund says Ireland's economic growth rate will not be as high as it thought over the next two years.
The fund expects the economy to grow by only 0.4% this year and by only 1.5% next year. It had earlier predicted growth rates of 0.6% and 1.9% respectively.
But the agency said the costs of this will be more than offset by the benefits of the European Council decision in July to significantly cut the interest rate on Ireland's borrowings from the EU and partner countries.
The IMF staff report follows the fund's review of the EU/IMF programme in July.
The fund commended the Irish authorities for what it described as resolute implementation of the agreed programme and said all benchmarks and targets identified were met. It also said restructuring of the banking system is ahead of schedule in some areas.
The Fund noted that the notional cost of Irish borrowings continued to fall on international markets but it noted the increased risks that have come about because of the wider crisis in the euro zone in the last two months.
It called for widespread consensus over budgetary targets and noted the Government plan to publish a schedule to bring the budget deficit down to 3% of GDP by 2015.
The IMF said that Ireland has access to plenty of funds over the next two years should there be another shock to the financial system. It urged the full and speedy implementation of the decisions by the euro zone authorities in July to expand the role of the fund that borrows money on behalf of Europe.
The IMF welcomed the reduction in interest rates agreed by the EU in July, and plans to make the euro zone rescue fund - the European Financial Stability Facility - more flexible. But it called for additional measures to help countries like Ireland to return to the bond markets at an early stage.
The report said the Irish economy has been flat in the past year, while unemployment has eased but remains high. The IMF notes an increase in inward investment in Ireland by foreign multi-national companies.
On the banks, the IMF said pressure caused by outflows of deposits has eased, while reliance on funding from the ECB has declined but remains high.
IMF supports case by case approach on mortgage debt
The IMF says it supports a case by case approach to the issue of mortgage debt reduction.
The IMF mission chief for Ireland, Craig Beaumont, said the fund supports the approach taken by the Government and the Central Bank - as outlined to the Oireachtas last week by Finance Minster Noonan and Governor Honohan - of encouraging lenders and borrowers to work out individual deals.
It said it welcomed the code of conduct for mortgage lenders developed by the Central Bank, and was awaiting legislation on a new personal insolvency regime and out of court debt settlement and enforcement mechanism, which is expected by the end of March.
Mr Beaumont said the fund was satisfied the Irish banks were now in a sufficiently strong position to take a case by case approach to dealing with heavily indebted borrowers along these lines.
The IMF also called on Dublin to consider raising €5 billion in asset sales, as recommended by a Government-commissioned group in April, to help reduce its level of indebtedness. Fellow euro zone struggler Greece has to sell some €50 billion worth of assets.