The IMF has issued its strongest call yet for European Union intervention to ease the cost of Ireland's bank bailout.
The IMF also says the government can make rapid savings by better targeting social welfare supports like child benefit, by changing the way third level education is paid for, and by changes to the health services.
The Minister for Finance, Michael Noonan welcomed the report and said that the contents would be carefully considered.
The IMF's mission chief for Ireland Craig Beaumont said it was very import that European authorities move ahead with using the the new bailout fund the ESM to buy equity stakes in Irish banks, as a means of helping to support economic growth.
But the IMF also said that Ireland still has a long way to go to bring down its budget deficit, and advises against increasing income taxes, as this could damage economic growth.
Instead it suggests a much higher rate of residential property tax - 0.5% - than that suggested by the commission on taxation.
It also suggests money can be quickly saved by better targeting of social supports, such as taxing child benefit, and a reduction in state pensions - for example closing out the 5% differential between contributory and non-contributory pensions.
It also suggests changing the way third level education is funded, linking college fees to the costs and earnings potential of particular courses, and by tailoring course availability to skills shortages in the economy.
It also suggests areas of reform in the health budget, such as limits on overtime, and greater use of primary care and generic drugs.
The International Monetary Fund says the falling growth in 2012 is due, to what it describes as a "weakening in trading partner growth".
It notes that Irish mortgage arrears have risen to almost 15%.
It says that the high level of mortgage arrears reflects the level of household debt at 210% of disposable income and high unemployment.
It says that the Government has succeeded in stabilising deposits and restoring strong capital ratios in the banks.
It notes however, that the banks have high levels of bad debt, and that their profitability and lending is weak.
The IMF says that the Government is on track to meet its target of a budget deficit of 8.6% of GDP and commended the authorities for "their strong ownership and steadfast implementation of the programme, particularly financial sector reform and fiscal consolidation."
During a media telephone conference call, Craig Beaumont, IMF mission chief for Ireland, said there was a strong link between the EU leaders' commitment on June 29th to cut the link between bank debt and sovereign debt, and Ireland's subsequent success in returning to the bond markets.
"There's a very strong connection between that market access, and markets' expectations regarding the follow up to the June 29 statement. So there is some room for markets to be disappointed if it didn't meet those expectations."
Mr Beaumont said if the ESM invested "a significant amount" of equity in Irish banks, it could make a substantial difference to ensuring Ireland regains durable access to market funding which would be needed for it to exit official financing.
He also cautioned euro zone leaders about the dangers of delays or inadequate action.
