State to pay back €10bn of IMF debt early

The Government is set to strengthen its financial position going into next year as it moves to accelerate the repayment of IMF debts.

After the National Treasury Management Agency sold 15-year bonds yesterday for the first time since 2009, Taoiseach Enda Kenny indicated that the Government would repay €10 billion of the €22.5 billion IMF debt by January.

“We hope to have very positive progress by the end of the year,” Mr Kenny said in an interview with Bloomberg News.

This marks a step up from the previous plan to repay €6.1 billion of the IMF debt before 2015.

The improvement in Ireland’s economic performance, which is being helped by recovery in the US and UK, came as the European Commission warned of weakening prospects for the euro zone.

The commission, which believes Ireland’s economy will grow at the fastest rate in the EU this year and next, said Germany should do more to assist Europe’s recovery.

Lowest level

The NTMA raised €3.75 billion in the bond sale at an interest rate of 2.487 per cent, the lowest level ever for Irish 15-year bonds.

This money will be used to defray IMF debts, which carry a higher interest rate. A further €6.25 billion required for a €10 billion repayment will come from cash the State holds, reducing costs it incurs for keeping money in reserve.

“The move to repay the more expensive IMF loans will bring about immediate benefits to the public finances in 2015, while the maturity of Ireland’s debt will also increase,” said Dermot O’Leary, economist with Goodbody Stockbrokers.

The NTMA received bids to buy €8.4 billion of debt, meaning the sale was oversubscribed but not to the same extent as a 10-year bond auction earlier this year.

“The yield of 2.487 per cent is a record low yield and provides a huge vote of confidence in Ireland from investors,” said Minister for Finance Michael Noonan. “The yield on the 15-year bond issued by the NTMA in October 2009 was 5.472 per cent.”

The sale came as October exchequer returns showed tax revenues running almost €1.1 billion ahead of target. This marked a further improvement from the position in September.

Health spending

Although health spending is overrunning, the Department of Finance said this was partially offset by underspending in “most other” departments.

“Barring any slippage in the last two months of the year, the final deficit looks set to beat the Government’s forecast of 3.7 per cent for 2014,” said economist David McNamara at Davy Stockbrokers.

In a new projection yesterday, the European Commission said Ireland’s economy would expand by 4.6 per cent this year and by 3.6 per cent in 2015.