Despite some risks facing the economy, the International Monetary Fund has said that Ireland's capacity to repay the rest of its bailout loans is strong.

This is due to the country's robust economic and fiscal performance, manageable financing needs and favourable market financing conditions.

In its sixth post-bailout programme, the IMF said the Irish economy continued to grow at a healthy pace last year, mainly driven by domestic demand.

It noted that broad-based employment gains brought the unemployment rate down to 7.2% in December, while recent Exchequer data also confirmed the positive trend in public finances. 

It said the headline general government deficit is expected to end the year on target at 0.9% of GDP, while the debt burden is on a "steady downward path". 

While Irish banks continued to work to repair their balance sheets, the IMF said their profitability remains weak. Property market conditions have tightened further, mainly due to a limited supply response, it added.

The IMF said it welcomed the work being carried out by the CSO and Central Bank, with support from the IMF and other outside experts, on alternative measures for economic activity here.

According to the IMF, the risks facing the economy include Brexit, a sustained low growth-low inflation environment in Europe, external political uncertainties and rising anti-globalisation sentiment.

It also said that ongoing developments in corporate tax treatment at an international level added to uncertainty for the economy. 

"The political context for the new minority government is challenging, but agreement on the 2017 budget represents an important milestone," the Fund stated.

On banks, the IMF said that Irish lenders continue to operate in a challenging environment. 

"The capital and liquidity positions of domestic banks have improved, but, with low underlying profitability, they remain vulnerable to shocks," it noted, adding that Brexit could put further pressure on their profitability. 

The IMF recommended that the disposal of the Government's stakes in Irish banks, which would support public debt reduction, should continue once market conditions are supportive. 
The IMF also said that resolution of "deep" mortgage arrears should be accelerated and intensified supervisory oversight of banks' internal management of non-performing loans resolution should continue to ensure that prolonged mortgage arrears are tackled through loan restructuring where feasible.