By Conor Humphries
DUBLIN (Reuters) - The International Monetary Fund cut its growth forecasts for Ireland on Friday and warned of significant risks to the country's recovery as it prepares to exit its EU-IMF bailout.
Ireland remains on course to become the first euro zone country to complete an international bailout later this year, but stubbornly low economic growth threatens to derail hopes of putting its national debt onto a sustainable path next year.
The IMF cut its 2014 forecast for gross domestic product growth to 1.8 percent from 2.2 percent, and to 0.6 percent from 1.1 percent in 2013 after the government reported weak growth numbers last month.
It remains more optimistic than a poll of economists by Reuters this week which forecast zero growth in 2013 and 1.7 percent in 2014.
"Risks to Ireland's economic outlook remain significant," the Fund said, citing weaker consumption and export growth and a lack of lending from the country's banks.
A further slowdown would risk pushing Ireland's national debt to 127 percent of GDP in 2015 from the 123 percent peak forecast by the government for this year. Hikes in interest rates or a shock to the economy could push that up to 136 percent of output in an adverse scenario, the IMF said.
"Slower growth remains the overarching risk to debt sustainability," the Washington-based body said, describing the projected decline in public debt as "fragile".
Maintaining the pace of budget cuts remains key and the government should stick to a previously agreed package of 5.1 billion euros of spending cuts and tax hikes over the next two budgets, the Fund added.
Dublin has said its 2014 budget later this month will include cuts and tax hikes of less than the 3.1 billion euros previously agreed with its lenders, but that it would still beat an agreed deficit target of 5.1 percent of GDP for next year.
The IMF repeated its call for Ireland's European Union partners to help find a cheaper way to fund loss-making mortgages that track low European Central Bank interest rates and have hampered a return to profitability for Irish banks.
It said one approach under development would allow banks to "borrow" the high-quality balance sheet of a European institution to issue market liabilities at rates that would make their low-yielding assets profitable. (Editing by Catherine Evans)
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