NTMA caution on going after money is good housekeeping
Our general government debt was a hefty €192.5bn at the end of 2012 so every little helps
The National Treasury Management Agency yesterday announced that it was suspending its fundraising activities on capital markets until “early 2014”.
It seems the reason had less to do with the jitters caused by the row over the debt ceiling in the US and more to do with the fact that the NTMA already has about €25 billion in the kitty to fund the State.
Put this with the €4 billion odd yet to be drawn down from the EU-International Monetary Fund bailout programme and the State has enough funding in place to get us through to early 2015.
Prudent housekeeping in other words.
Suspending the Treasury Bills auctions, short-term debt that typically rolls over every three months, at this point of the year also ensures the existing bills in the market will have matured before the year end and won’t be counted as part of the general government debt as measured by Eurostat.
This debt measure will be about €1 billion lighter at the year end as a result. Our general government debt was a hefty €192.5 billion at the end of 2012 so every little helps.
While it might seem like a good idea to stockpile as much cash as we can get our hands on right now – in case the markets change their minds about us – it comes at a cost. About €2.2 million each month for every €1 billion we hold in cash.
This is money that could clearly be better used by the exchequer for other purposes.
In that context, it seems prudent for the NTMA to pull back from markets for now. It’s worth noting that in “peace time” (before the crash in 2008), as it’s referred to in NTMA headquarters, Ireland typically kept about €6 billion on deposit at any one time. But that was a different era, when the spread between German and Irish bonds could be as small as 10 basis points. It’s about 200 now.
Many Irish taxpayers might wonder why we need a €3.1 billion adjustment in the exchequer finances in this month’s budget when we have so much cash lying around on deposit.
Well, by the year end, the balance will have reduced to about €21 billion while we have a bond redemptions in January of €6.8 billion. That’s the guts of €11 billion accounted for already before the NTMA goes back to the market.
With the country also due to exit the bailout at the end of this year, it’s considered prudent to have about 15 months of cash on hand as a rainy-day buffer.
Besides, in spite of all the cutbacks to date, the country is still spending about €1 billion a month more than it is generating in taxes, which isn’t sustainable.
Ireland isn’t out of the woods yet, nor is the euro zone. Growth here is sluggish at best, unemployment remains stubbornly high and there is far too much indebtedness overhanging the economy.