Current account now heading for surplus at end of year

THE Government's current account is likely to be in surplus at the end of the year for the first time since 1994 and only the second time in 29 years, the Minister for Finance has predicted.

Mr Quinn, who was speaking at the presentation yesterday of the annual report on the National Treasury Management Agency, refused to speculate about the extent of the surplus.

A significant surplus would indicate that Mr Quinn would have substantial scope to cut taxes and increase spending on social welfare in next year's Budget, the last in the lifetime of the current Government. This is because strong tax buoyancy this year would be expected to continue into 1997.

The Minister had originally predicted that the Government current account would show an £82 million deficit at the year end, when he framed his Budgets last January. The improvement was evidence of the strength of the economy and the Government's good management of it, he said.

The Department's latest forecast, says that Gross Domestic Product will grow by 7.5 per cent this year, compared to the 5.75 per cent predicted at the time of the Budget.

The Minister refused to comment on the recent report by Goodbody Stockbrokers which suggested that buoyant corporation tax receipts and lower debt service costs would mean that the Exchequer borrowing requirement would be substantially less than forecast.

Goodbody economist, Mr Han de Jong, expects that the Government will only have to borrow £375 million to fund day«MDBO» «MDNM»to«MDBO» «MDNM»day expenditure this year, rather than the £729 million predicted by Mr Quinn in his Budget.

Such an outturn would give the Minister additional scope for substantial tax cuts. Mr Quinn said that it was too early at this stage to speculate about the structure of next year's Budget.

Most of the information contained in the NTMA's annual report was made public at the end of 1995. However, the chief executive of the agency, Dr Michael Somers, said that the recent strength of the pound has already wiped £400 million off the national debt.

This was because of the translation gain when money borrowed in weakening foreign currencies, such as sterling and the dollar, was converted back into Irish pound terms. The national debt currently stands at £30.177 billion compared to £30.209 billion at the start of the year, he said.

The ratio of national debt to Gross Domestic Product, as reported for the purpose of meeting the Maastricht criteria for monetary union, is continuing to fifth from its end of 1995 level of 81.5 per cent, said Dr Somers.

He added that the market«MDBO» «MDNM»had taken the view that Ireland would participate in monetary union. This was clear from the yield on Irish 10«MDBO» «MDNM»year bonds, which were now 0.5 percentage points below British rates, he said.

It was important in this context that investors continued to see the pound as a strong currency and not a clone of sterling, said Mr Somers.

Mr Quinn added that he also believed that the market's view of Ireland had changed over the last year and that it was now widely accepted that Ireland would be among the first group of countries to participate in EMU.

He confirmed that the Cabinet had taken the decision that the NTMA would take over the management of the Department of Agriculture's funds following criticism by the Auditor General of the Department's management of the EU funds it distributes.

Mr Quinn also confirmed that he had approved arrangements for another £50 million worth of local authority mortgages. This followed the successful issue of £140 million of local authority mortgages through the special purpose vehicle, Ulysses Securitisation.

The gilt market«MDBO» «MDNM»making operation introduced last December is working well, said Dr Somers. The system, under which six brokers quote firm bids and offer prices for nine bonds, will be reviewed in December and many require some fine tuning, he said.

UBS, the London«MDBO» «MDNM»based securities house which is one of the market makers, has also been appointed as debt management adviser to the agency.

The performance of the agency is measured against an imaginary benchmark portfolio managed by UBS. However, there will be no conflict of interest because of strict confidentiality rules at UBS and limits on the information provided to UBS he said.