With the Irish economy operating at full capacity and inflation still elevated, the Government should “avoid injecting unnecessary demand stimulus” in the budget, the International Monetary Fund (IMF) has warned.In its latest assessment, a preliminary version of which was published last month, the Washington-based fund said any discretionary fiscal spending should be temporary and targeted.“Fiscal policy should achieve a broadly neutral stance while scaling up public investment efficiently,” it said.The Government has exceeded its annual spending target by an average €5.1 billion in each of the last three budgets, with most of the overruns being driven by day-to-day rather than capital spending.Minister for Public Expenditure, Jack Chambers has written to all Government departments warning them to rein in spending while indicating he plans to introduce enhanced oversight mechanisms before the budget.In its report, the IMF welcomed the Government’s “commitment to accelerating public investment” while highlighting housing and infrastructure gaps as a source of vulnerability for the economy.It said the Irish economy had remained resilient in the face of consecutive economic shocks and is projected to grow “at a slower but still robust pace” because of higher energy prices and ongoing global uncertainty. Growth in modified domestic demand – a more accurate measure of the domestic economy – is projected to moderate from almost 5 per cent in 2025 to about 2.5 per cent in 2026–27, largely reflecting a softening of private consumption due to weaker employment and real income growth.At the same time, headline inflation is projected to rise to about 3.5 per cent this year before returning to 2 per cent around 2028. The IMF cautioned, however, that its outlook is subject to elevated uncertainty, with downside risks to growth and upside risks to inflation.As well as housing and infrastructure, the IMF highlighted the economy’s increasing reliance multinationals as “a source of vulnerability”.“Given these vulnerabilities and risks in a more shock-prone and fragmented world, Ireland cannot take its resilience for granted and should use the current window to address vulnerabilities, improve productivity and secure lasting prosperity,” it said.Broadening the tax base and strengthening the national fiscal framework would reduce vulnerability to the highly concentrated corporate tax base and help prepare Ireland for long-term challenges related to ageing and the green transition, it said.Minister for Finance, Simon Harris welcomed the IMF’s assessment, describing it as a “useful economic stock-take” that “helps shed light on our relative strengths and weaknesses”.“I note and share the IMF’s assessment of external risks, notably the reversal of globalisation, the ongoing disruption caused by regional conflicts, domestic capacity constraints and the uncertainty in relation to corporation tax receipts,” Harris said. Also welcoming the report, Chambers said: “Today’s IMF report reflects the continued strength of the Irish economy, in the face of heightened global uncertainty and rapid technological advancement.“I share the IMF’s view that addressing structural issues is key to maintaining economic growth, and in particular the need to address the challenges and bottlenecks present in infrastructure delivery,” he said.