The review of the Irish economy by the International Monetary Fund is a vindication of the Minister for Finance, Mr McCreevy. He has been telling anyone who would listen that the Irish economy is the envy of Europe - if not of the world - and that inflation is a short-term problem. Now it seems that the IMF agrees.

The Fund, not normally noted for its hyperbole, has issued a glowing report on the economy. Until very recently organisations such as the IMF and the OECD used traditional methods of assessing Ireland's economic performance. And, by those standards, the economy was booming to such an extent that a bust seemed inevitable.

They now appear to agree that the standards that should be applied are those of a regional economy - and a very open one at that - and not of a large, relatively-closed national economy.

In a sentence which will be warmly welcomed by Mr McCreevy, the IMF directors commended the authorities for the performance of the economy. They pointed to sound and consistent macroeconomic polices, a flexible labour market, a favourable tax regime and the admittedly longstanding outward orientation of Ireland's trade and industrial policies.

The report, published yesterday, called the performance of the Irish economy "spectacular".

But, inevitably, every such report contains a few caveats. The Government must pay off the national debt, must ensure wage restraint and must keep its own spending under strict control.

The IMF also laid out specific ground rules for the coming Budget: tax concessions in the partnership agreement should be adhered to but not exceeded, and a tight lid should be kept on day-to-day Government spending.

The assessment could almost have been written by Department of Finance mandarins with an eye on profligate Departments and the forthcoming pre-Budget spending negotiations.

Interestingly, the report also effectively called for the Minister to introduce multi-annual spending envelopes, in contrast with his decision in May to abandon the idea. This would set departmental budgets for a three-year period.

Inflation, which is heading towards 6 per cent, cannot be ignored, and the IMF notes that the signs of overheating have become more pronounced of late.

Again, the main concern is one with which Mr McCreevy would concur. This is the danger that higher inflation will put a strain on the national wage agreement, while rapid property price inflation will add to that pressure.

The risk identified by the IMF is not really the traditional view that inflation will erode competitiveness, but more that it will undermine the stability that has been central to success. It points out that Irish competitiveness is being sustained partly by the weakness of the euro.

That helps Irish exporters, particularly to non-EU countries. But a strengthening of the euro could set the stage for a difficult adjustment if Irish wages and prices remain well above those of our trading partners.

The extent of the export boom was underlined by new figures from the Central Statistics Office yesterday. These show that exports to non-EU countries in the six months to June have increased by 44 per cent. The value of exports to non-EU countries was £11,736 million (€14,901 million) in the period while imports increased by 21 per cent, to £7,781 million.

The IMF's prescription to sustain the State's economic fortunes is pretty much in line with the Government's strategy. The fund calls for spending on the national development plan to alleviate bottlenecks and to foster greater competition through deregulation and privatisation.

The Government has a mixed track record in the latter area; the telecoms sector has been opened up but energy and transport are still anti-competitive.

The fund also calls for further tax reforms aimed at encouraging labour force participation. This is probably a reference to the controversial individualisation proposals in the last Budget, which were aimed at getting more married women into the workforce. But it also recommends that pressure for larger tax reductions than those already agreed under partnership should be resisted, as this would add to the risk of overheating. The IMF wants a fairly tight Budget, warning that rapid growth in current spending could undermine the economy, and calling for any additional tax revenues to be used to pay off the debt. This is extremely difficult for any Government to achieve at a time of increasing surpluses and buoyant tax revenues, particularly as it may be facing an election.

In a section which is likely to be seized upon by Dublin's stockbrokers, the IMF even said that a downturn in property prices would not affect the banking sector too much. But the news is not so good for householders.

The trend of rapidly rising prices could be abruptly reversed, it says.

Overall, it maintains that the future is rosy. According to the board of the IMF, the economy is well placed to perform strongly. The main reason for this, it appears, is the well-established position in several high-growth sectors.

This is a reference to the growing numbers of high-tech firms based here as well as to large numbers of pharmaceutical companies.

In this regard, some economists believe that the export figures released by the Central Statistics Office yesterday mean that the IMF may be a little cautious in its estimate that Gross Domestic Product will grow by 8.7 per cent this year.

But overall, the IMF has delivered a real vindication of current economic policies. The next problem for Mr McCreevy is likely to be the Budget.

The pressure to produce a give-away will be immense. To do so would risk overheating the economy. And it would almost certainly guarantee that next year's IMF report would be a lot less glowing.