The International Monetary Fund has published its eleventh review of the Irish bailout programme.

In its review, the IMF says the Government is committed to meeting a budget deficit target of 5.1% of GDP in budget 2014.

The Fund notes that the Government believes it can reach this target with an adjustment smaller than the €3.1 billion previously planned.

The IMF appears to take no view on this, but stressed the importance of delivering €5.1 billion of adjustment over two budgets - 2014 and 2015.

This implies that the IMF would be prepared to accept a smaller budget adjustment in 2014, so long as the amount was made up in the 2015 budget.

The staff report says the Government will publish Budget 2014 on October 15, along with fiscal targets out until 2016 that will set out the path to reduce the deficit.

It says the consolidation for 2014 will be met through carryover effects from last year's Budget worth €1.25 billion - 0.75% of GDP out of a planned adjustment of 1.8% of GDP.

The IMF says new budget measures should minimise drag on demand and job creation, so it recommends spending cuts over tax rises.

It says the Government has told it that on the spending side it is seeking to better target social supports and subsidies, get savings through public service reforms, and continue targeted capital investments.

On the taxation side, the Government has said it will look to further broaden the tax base rather than raise rates.

The report adds extra detail on the Irish authorities' search for solutions to the problem of loss making tracker mortgages in the Irish banks.

The cost of funding the trackers is higher than interest paid by borrowers, and the banks are losing money on about half the mortgages on their books. The IMF notes that simply getting more money from the ECB could serve to undermine market perceptions of the Irish banks.

An alternative approach is for the Irish banks to effectively "borrow" the high quality balance sheet of a European institution to borrow money at lower rates, and so make the Irish tracker book profitable for the banks, which would enable them to lend more to the Irish economy.

The IMF estimate the loss on tracker mortgages at 0.4% of average assets. It notes the impact of the low credit rating of Irish banks (and the state) saying that recent three year bond issues by Irish banks yield about 2.1%, while three year bonds issued by AAA rated banks trade at 0.3% yield.

If some form of "credit enhancement" can be devised that would allow Irish banks to fund their tracker mortgages at AAA rates of interest, the trackers would become profitable and contribute significantly to their ability to generate their own capital, which is needed to sustain lending.

It says such a mechanism would feed positively into the forthcoming stress tests ahead of the start of the Single Supervisory Mechanism - the new pan-European banking supervisor. It says such a framework could have broader applicability to other Euro area countries where easing credit constraints are key to economic recovery.

The IMF also notes the entry into force of the Central Bank (supervision and enforcement ) act 2013, which gives the Central Bank - among other powers -the ability to require auditors to provide a written report on a firms compliance with regulatory requirements, and to order firms to undergo third party reviews of their business.

It also urges the Government to assign more staff to work as case officers in the employment service offices around the country, to help unemployed people get back to work or training.

It says the current ratio of one case officer to 788 unemployed is very high. 300 new case officers are required this year and another 2000 next year to bring the ration closer to the target of 220:1

It notes that the rations for employment services in other countries are lower. In the Netherlands it is 60:1, in Sweden and the UK it is 80:1, in Australia it is 97:1 while in Germany it varies between 90 and 158:1