The International Monetary Fund has rejected a call by its former chief of mission to Ireland for a significant reduction in austerity in the country.

Speaking on RTÉ’s This Week programme yesterday, Prof Ashoka Mody said Ireland should consider greatly reducing the policy of austerity.

He said there had been little growth in the economy this year or last year and he said it was hard to believe that austerity was not part of the problem.

However the IMF has distanced itself from his comments, stating that “Mr Moody has retired from the IMF and his views do not represent the Fund’s position.”

A spokesperson said the Irish bailout programme steadily reduced the country’s fiscal deficit and while this created an “unavoidable drag” growth there was nothing to suggest that the measures were self-defeating.

Earlier the Tanaiste responded to Prof Mody's comments by stating that the Government would decide how to use the €1 billion Anglo Irish Bank promissory note savings when it drafts the Budget later this year.

Eamon Gilmore told RTÉ News that the Government would underpin in the Budget its strategy of boosting the domestic economy to encourage growth.

Meanwhile Minister of State Brian Hayes dismissed the recommendations, saying the views of Prof Mody were not the same as the International Monetary Fund.

Mr Hayes said that the former IMF chief’s opinions were based on the assumption that Ireland had an alternative to its current course of action.

He said that to follow Prof Mody's recommended course would be to take "a gamble with money we don't have."

Mr Hayes questioned whether Ireland could obtain funding to bridge the gap between its income and expenditure if it took a break from the current programme of austerity.