Ireland in talks to repay IMF portion of bailout loans early

Move could save exchequer billions of euro in interest payments

International Monetary Fund managing director Christine Lagarde and Minister for Finance  Michael Noonan. Ireland would need the full agreement of EU member states to separate the IMF and European portions of the bailout package. Photograph: Francois Lenoir/Reuters

International Monetary Fund managing director Christine Lagarde and Minister for Finance Michael Noonan. Ireland would need the full agreement of EU member states to separate the IMF and European portions of the bailout package. Photograph: Francois Lenoir/Reuters

Fri, Jul 25, 2014, 01:00

The Government is in discussions with its international lenders about repaying some of its bailout loans early, in a move that could save the exchequer billions of euro in interest payments.

Behind-the-scenes discussions have been going on between Dublin and European capitals to seek political support for the move, which would need sign-off from EU countries including Germany.

The Government is seeking to restructure only the IMF portion of its €64 billion bailout loan repayments, as it costs more because it commands a higher rate of interest than the EU loans.

But under the original bailout agreement struck in December 2010, any move by Ireland to repay its loans early must apply to both the IMF and European portions of the package. While Ireland’s EU lenders could revise this clause, such a change would need the full agreement of member states.

Dublin officials have been assessing the appetite among member states to sanction such a move before a formal application is made.

Currently, Ireland is paying about €1 billion a year in interest on its IMF loans.

The cost of servicing the IMF loans is about 5 per cent – more than twice the interest rate charged for the European loans.

Twice market rate

With Irish 10-year debt currently attracting a yield of just over 2 per cent in the market, Ireland is effectively paying more than twice the market rate for its IMF loans.

With most parliaments heading into summer recess any formal decision would not take place before the autumn, and hence is unlikely to be actually in place before this year’s budget in October. However, a reduction in interest rates could be a significant boost to the exchequer in the coming years.

While attention has focused on the Government’s pledge to secure retroactive direct bank recapitalisation for AIB and Bank of Ireland, a decision to allow the early repayment of bailout loans may be more palatable to certain countries.

However, sources in Brussels said some euro zone members may resist any move to allow Ireland to repay its IMF loans early, as the EU would then take on the full risk of holding the outstanding loans.