Ireland’s financial woes are getting worse instead of better with a default more likely that ever – but Prime Minister Enda Kenny has again vowed not to cut public sector pay at any cost.

Latest figures show that cuts of up to €5billion – and not the forecast €3.6billion – will be needed in the December budget.

Growth rates for the Irish economy in 2011 have now been slashed to less than 1% while the government’s tax take is also down on expectations.

Leading economists are warning that an Irish default on the EU-IMF bailout is far more likely according to the Sunday Independent.

The paper also reports that a confidential memorandum sent to all government departments this weekend features Kenny’s pledge not to cut pay for civil servants.

Jim Power, chief economist with Friends First, told the Independent that the ‘downgrade in growth forecasts meant an Irish default was now far more likely unless Europe intervenes with a genuine rescue package.’

“Either Europe steps up to the plate with a realistic rescue package or it is inevitable that Ireland will default. The numbers are now too big for the economy to cope with and we are running out of road very quickly,” said Power.

However, the top-level secret document issued to Ministers and senior government staff says that the Government is committed to a course in which all other avenues will be prioritised before further pay cuts for public sector workers will be countenanced, despite the worsening economic conditions.

The note acquired by the Sunday Independent says: “Government does not want a situation where public pay rates are cut.

“The Government will continue to push for reforms under the Croke Park Agreement but acknowledges that there is a limited window in which to achieve those reforms before the IMF will insist on wholesale reductions, including salaries.

“The Government does not want to see pay cuts happen and we've got a time window now in which to implement in full the Croke Park agreement.”

Government sources have also told the paper that the decision not to cut wages is designed to encourage staff to take up voluntary redundancies as part of a package designed to ‘achieving the reduction in numbers of 25,000 and wider efficiency reforms while maintaining industrial peace.'

A senior government source said: “How could we expect to get reform if we are threatening more cuts? We are trying to avoid that scenario at all costs.

“The Government is committed to achieving the necessary reforms in the public sector through the Croke Park agreement, which protects pay, this being conditional on achieving the necessary savings through eliminating waste, increasing efficiencies and securing real reform.”

The Kenny led coalition government had planned to cut spending by €3.6billion this year based on a budget deficit of €12billion, but that figure is now likely to be widely optimistic.

Power, one of the most respected economists in the country, has claimed that the economy cannot sustain further cuts of €5bn this year and that Ireland is now heading for default.