The severity of the deep downturn means the eurozone nation's gross domestic product is still expected to shrink by 0.6 percent this year, the IMF said in a key report, adding that Irish GDP should grow 2.5 percent in 2012.
Ireland became the first eurozone member country to plunge into recession, in the first half of 2008, slammed by the global financial crisis, a domestic property market meltdown and soaring unemployment.
"Recovery prospects are weighed down by the ongoing correction of pre-crisis imbalances," the IMF said in its report on Ireland.
However, it added: "The authorities' aggressive measures have helped gain policy credibility and stabilize the economy."
The government has pumped huge sums of money into crisis-hit banks and set up the National Assets Management Agency (NAMA), a state-run "bad bank" that is designed to soak up billions of euros (dollars) of the lenders' toxic assets.
At the same time, the government has sought to slash spending, in line with many other European countries, to curb its huge public deficit as it seeks to maintain its credibility on global financial markets.
"After a severe decline in late 2008 and 2009 -- amounting to more than 15 percent contraction of the nominal GDP -- the Irish economy has now stabilized and growth resumed in the first quarter this year," the IMF said.
"The Irish authorities were among the first in Europe to undertake serious fiscal consolidation, with the introduction of an income levy and sizeable cuts to public sector pay and social welfare benefits.
"This early action helped restore confidence and a strong export performance has lifted growth prospects," the IMF added.
The fund also noted that there remained much work to do in the nation's battered banking sector.
"Substantial rebuilding of the Irish banking sector is still needed. There are two immediate issues: recapitalization and liquidity," said Ashoka Mody, IMF mission chief for Ireland.
"If everything goes according to schedule, Ireland's banks will have been recapitalized to a reasonable extent by early next year," he said.
The should "give the banks greater ability to obtain market funding on their own and be gradually weaned off public support," he added
Ireland's former Celtic Tiger economy was hammered by the global financial crisis after more than a decade of growth that had placed it among the richest nations in Europe. Its economy shrank by a record 7.6 percent in 2009.
However, Ireland powered out of the downturn earlier this year, with GDP soaring by 2.7 percent in the three months to March, compared with the final quarter of 2009, as exports soared on the back of a weak euro.
"Although the economy could grow again this year, a return to the high growth rates that earned Ireland the nick name of 'Celtic Tiger' is unlikely, with the IMF expecting GDP growth to increase gradually to about 3.5 percent in 2015," the fund said on Wednesday.
Recent data showed that Ireland's unemployment rate jumped to a 16-year high of 13.4 percent in June, while the number of people claiming benefits struck an all-time high.
"Unemployment remains high at more than 13 percent of the labor force and the country's openness makes it vulnerable to the instability that has gripped financial markets in recent months," the IMF noted.
Source: AFP Global Edition