Ireland must deal with the large number bad loans which are hindering new lending as it aims for economic and employment growth, according to the International Monetary Fund.

Completing its tenth review of Ireland’s bailout programme, which also saw it release the final €950m of its loans, the IMF said there needed to be resolution on the 25% of loans that are currently non-performing.

The IMF said it was vital that this was achieved before the country enters the European banking union, and ahead of European stress tests due to take place next year.

“Two and a half years into their program, the Irish authorities maintain steadfast policy implementation. Improved market sentiment and the recently approved extension of EFSF/EFSM loan maturities have been reflected in a decline of bond yields,” said Deputy Managing Director of the IMF David Lipton.

“Yet economic recovery is not well established and risks to debt sustainability remain. Strong policy implementation and timely delivery on European pledges to enhance program sustainability remain key.”

Separately, the European Financial Stability Facility said today it had disbursed €1.6 billion to Ireland. The funds were transferred in cash and the loan has a maturity of 29 years, until 2042.

With this disbursement, the EFSF said, Ireland has now received €14.4 billion from the fund, out of the total committed amount of €17.7 billion.