The International Monetary Fund has warned the Government that any increases in public sector wages should be gradual and efficiencies should be continued.

In its latest post-bailout report, the IMF said while Ireland was cutting its deficit a stronger adjustment would be appropriate.

It said that the country's economic recovery was in full swing, with employment growing and public finances improving.

However, the fund said problems remained following the economic crash.

Mortgage arrears remained high and were increasingly prolonged, it said, while the most prominent downside risk were unexpected developments in Greece.

Growth in house prices had eased partly due to new Central Bank mortgage rules, it said, however it warned that commercial property prices are rising rapidly due to higher rents. 

The IMF also said that any planned reforms of the country's tax system should focus on areas which support job creation.