National Treasury Management Agency highlights improving finances
Minister for Finance insists State has moved from ‘quite difficult’ position to sustainable one
NTMA chief executive John Corrigan. The agency has raised €10.5 billion from the markets this year in various issuances, including a €5 billion 10-year bond in March. Photograph: Brenda Fitzsimons
What a difference a year can make. Our economic recovery remains fragile and could yet be knocked off track by a major external shock but the outlook around our national finances has improved immeasurably over the past 12 months.
This was the message that the National Treasury Management Agency (NTMA) sought to drive home yesterday at the publication of its annual report and its mid-year update.
Minister for Finance Michael Noonan said we have moved from a position that was “quite difficult” to one that was “quite sustainable”.
He cited how the NTMA has raised €10.5 billion from the markets this year in various issuances, including a €5 billion 10-year bond in March, the first of its type since January 2010.
The yield on our bonds has come down from a peak of 14 per cent in mid-2011 to a level at around 3.8 per cent.
“We wouldn’t have got money at those interest rates even when we had a triple-A rating,” the Minister noted.
The replacement of the Irish Bank Resolution Corporation promissory notes with long-term government bonds will reduce the State’s funding requirement by €2 billion a year over the next decade.
The deal on extending the maturities on the European portion of our troika bailout loans is worth a similar amount.
So the State’s funding requirement has been reduced by €40 billion over the next decade, easing a lot of nerves in the markets about our ability to repay our debts.
Not that we should be getting too carried away.
Ireland’s national debt still rose by €18.5 billion in 2012 and finished the year at a record €137.6 billion. Our debt servicing costs rose to €6.5 billion last year from €5.4 billion in 2011. That’s a hefty burden for a State that generates about €42 billion in total income annually.
The vast bulk of the increase in our national debt was represented by the €14.9 billion exchequer deficit in 2012. That has reduced this year due to the package of measures in last December’s budget but we’re still borrowing about €1 billion a month to fund the State.
The projected general government deficit – a gross measure that doesn’t take account of the State’s cash balances and other financial assets – relative to our GDP will peak this year at 123.3 per cent.
The NTMA has accumulated a pot of funds that will tide us over until the end of 2014. That’s one full year after the bailout programme ends.
When asked if this might be a good time to tap the markets for more funds given the current low interest rate on our bonds, the NTMA’s chief executive John Corrigan said: “Our thinking at the moment is to leave it until the fourth quarter [of 2013] and at that stage the market will have sight, hopefully, of the exit arrangement [from the troika bailout] and also the budget. I would anticipate they would both be positive factors in relation to the price [we will get on our bonds].”