The European Commission has warned that Ireland must take “decisive policy action” to address macroeconomic imbalances in the economy.

The in-depth review, to be published on Thursday, finds that despite a marked improvement in Ireland’s economic outlook, a number of risks remain.

These include the high level of private and public debt, high structural unemployment and residual concerns about the banking sector.

The commission has also raised concerns about the funding model for Irish Water, warning the utility may not be in a position to fund and borrow on the markets.

Commenting on the Government’s recent decision to change the structure and charges levied by the utility, it notes that Irish Water “will remain dependent on central government funding for some time” .

Water system

It adds that there could be a significant “fiscal risk” if Eurostat finds the State’s funding of Irish Water cannot be kept off the balance-sheet. A ruling by the EU statistical agency, which will determine whether Irish Water’s borrowing costs can be kept off the Government’s books, is due in April.

The EU’s verdict on Ireland comes as the commission publishes its latest economic review of European countries.

Greater scrutiny

The Government will be subject to two post-bailout inspections by the troika until 75 per cent of Ireland’s bailout loans are repaid to the European institutions and the IMF. The Government has until May to respond to the report.

Among the other economic challenges identified by the commission is a “digital skills gap” among the population.

“Some 42 per cent of the workforce has few or no digital skills . . . Supply is not keeping pace with demand,” the report states, noting that Ireland suffers from a shortage of skilled ICT professionals.

It also calls on the Government to press ahead with the planned reform of the Junior Cert cycle.

“The implementation of the new junior cycle would be a major development in school education,” it says.