‘Era of free money’ for State borrowing coming to an end, PAC told

The “era of free money” when it comes to State borrowing on international markets is “very much coming to an end”, the Dáil’s spending watchdog has been told.

The Public Accounts Committee (PAC) heard that the cost of borrowing has “risen substantially” from around zero per cent interest with bond yields standing at 1.7 per cent on Thursday.

Ireland’s national debt was €237.2 billion at the end of 2021, up from €219.5 billion 12 months earlier as spending on pandemic-related supports drove borrowing.

John Hogan, secretary general of the Department of Finance told the PAC that, despite the changing environment on international markets, Ireland is “generally well placed to deal with the issues that are now arising”.

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He said this was because the National Treasury Management Agency (NTMA) has been engaged in “a significant reprofiling and elongation of our debt and associated with that by virtue of benefitting from the low interest rate environment”.

He said this has had “a material impact on the cost of servicing the debt”.

Mr Hogan also said there has been movement in interest rates in the United States and the European Central Bank has “already indicated some of the policy options that they intend to take over the next while very much linked to the winding down of asset programmes that have been instrumental in terms of the moderation of the international lending environment”.

He added: “What might have been described as the era of free - or more than free - money is very much coming to an end.

“We’ve been mindful of it. We’ve been indicating it in our documentation over the last number of year. We’ve been planning accordingly.”

He said the work of the NTMA has “put us in a good position”.

Mr Hogan’s remarks came in response to questions from Fianna Fáil TDs James O’Connor and Cormac Devlin.

The Department of Finance’s chief economist John McCarthy told the PAC that in 2020 “most of the debt was taken on at in or around zero per cent.

“It obviously differed from debt instrument to debt instrument but the vast majority of debt was at zero per cent.”

He said this was because ECB was “essentially backstopping debt issues in all Euro area member states” through quantitative easing.

He added: “That did continue in 2021 as the ECB continued to hoover up a lot of the additional debt issuance but that is now being discontinued.

“We are moving from quantitative easing to a quantitative tightening space.

“So the cost of borrowing - 1.7 per cent this morning - has risen substantially.”