The Government should double its target for job cuts in the public sector to 10,000 and revise the terms of benchmarking to save money, employers' lobby IBEC has advised.

In its quarterly economic review, published yesterday, IBEC also recommends additional Exchequer borrowing to fund capital, or infrastructural, projects.

IBEC says the economy has overshot in many areas and must reach "a new equilibrium" before progressing towards sustainable growth of about 5 per cent.

"The only viable option is to curtail current Government spending levels to meet with the new economic conditions," the review advises. "Above all, Government must revisit the benchmarking process," it states.

IBEC's chief economist and editor of the review, Mr David Croughan, declined to specify how the benchmarking process should be modified last night, but described the rates of increase already agreed for public-sector pay as "extremely high" and said the initiative was being implemented "at an extremely unfortunate time".

"Certainly if it is paid, the costs will have to be offset by a very substantial increase in productivity," said Mr Croughan.

Even if benchmarking is postponed or if its cost is reduced, the Government should make extra savings by further reducing the public-sector workforce, according to the review.

In last December's Budget, the Minister for Finance, Mr McCreevy, said public-service job numbers would be capped and then cut by 5,000 over three years through retirements and voluntary departures.

IBEC recommends that this target should now be raised to 10,000, so that more money can be saved and conditions in the public sector can go some way to reflecting problems encountered in private-sector firms.

Sourcing additional funds through higher taxation should not be considered under any circumstances, IBEC says, warning that such a strategy would impede recovery and filter through into the traded sector as higher costs.

The group is predicting that the economy will grow by 1.8 per cent this year by the gross national product measure, which excludes profits repatriated by foreign companies operating in the Republic.

This growth rate should rise to 2.8 per cent in 2004, according to the analysis.

The Green Party said last night that the Government should treat the IBEC review with "derision".

The party's finance spokesman, Mr Dan Boyle, accused IBEC of treating public services like luxuries that could be cut when they did not comply with commercial agendas.