The Fiscal Advisory Council - the statutory body charged with assessing and advising on the Government's budget policy - says the Government deficit should be close to 2% by 2015.

This is significantly better than the Budget day forecast of just under 3%.

A lower-than-expected deficit last year and the impact of the promissory note deal have both changed the arithmetic used to frame the Government's budget plan.

The Fiscal Advisory Council has reworked the numbers taking these factors into account, and it says they will significantly improve the budget deficit situation in the years ahead.

The Government is committed to bringing the deficit below 3% by 2015 under EU rules and the terms of the Troika bailout.

On Budget day last December, the Government said the deficit should be 2.9% in 2015. But using the post-Budget information, the Fiscal Council says it will now be almost 2%.

Last week the IMF said it expects the 2015 deficit to be 2.2%, well within the target.

However the Fiscal Council says the Government will only meet that target if it sticks to its existing plans, meaning adjustments of €3.1 billion and €2 billion in the 2014 and 2015 budgets.

In previous reports, the Fiscal Council had called for extra adjustment - totalling almost €2 billion - to ensure targets are met and give extra confidence to markets that the state will not default on borrowings.

Now it says the effect of the promissory note deal and the improved Budget performance last year are equivalent to €1.6 billion in savings, meaning there is no longer any need for extra measures.

The Council says the margin of safety it has previously argued for has now been broadly achieved, and so a case for a further €1.9 billion in adjustments is not being made in its current report.

It says a robust return to creditworthiness by the state would be helped further by an extension of maturities on EFSF and EFSM loans from the European Union.

Precautionary funding arrangements from the new bailout fund - the ESM -, and the IMF, should also be lined up to help in the transition to full market financing after the bailout funding finishes at the end of this year.

Such precautionary finance - only to be drawn down in the event that the State cannot raise funds from markets - could also make the country eligible for the ECB's new government bond buying programme, the OMT.

As part of its formal mandate, the Fiscal Council has to look back at forecasts made by the Department of Finance and test them against actual outturns.

It says that growth in the euro area and the UK appears likely to be weaker than assumed in the Budget forecasts, and says there is a downside risk to achieving the Department's forecast of 1.5% growth in GDP this year.

The Council also says its research on forecasting shows a pattern of over-prediction of domestic demand, and an under-prediction of net exports in the department's forecasts.

It says this suggests forecasters have underestimated the severity of the "balance sheet recession" that followed the bursting of Ireland's property and credit bubble.

A balance sheet recession is a situation where a large portion of the private sector (households and businesses) has reduced spending in order to repair their financial situation.

Fiscal Council Chairman sees ''light at the end of the tunnel''

The Chairman of the Fiscal Advisory Council, Professor John McHale, has said there is light at the end of the tunnel and the difficult phase of austerity should be over by 2015.

Prof McHale said by then, there should be some room for pay increases, or tax cuts and increases in social welfare benefits.

While Prof McHale said there is still a lot of uncertainty around the budgetary outlook, particularly regarding economic growth, he said there had been positive developments, including the promissory note deal.

He said current growth forecasts from the Department of Finance look achievable, but will be challenging.

There are signs of stabilisation in the domestic economy, he said, but there is renewed weakness in the international economy, so the growth forecast could be downgraded a little.

He also said that funding pressures on the State would be eased over the next few years, if Ireland was given an additional seven years to repay bailout loans.