National Treasury Management Agency limits State exposure to higher market interest rates — for now

The State’s borrowing costs in the open market may be hovering around levels last seen in 2014 — following a raft of European Central Bank (ECB) rate hikes in the past 12 months. The market interest rate, or yield on benchmark Irish 10-year bonds is about 2.84 per cent.

But bumper Irish corporation tax windfalls are continuing to help shield the National Treasury Management Agency (NTMA) from having to overly rely on international markets, for now, at least.

While the NTMA originally set out to raise €7 billion to €11 billion in 2023, it said on Monday that it will hold its last bond auction in September — suggesting its full-year fundraising efforts will come in at the bottom end of the range.

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It’s the second year in a row that the NTMA has decided to get out of the markets having raised about €7 billion, below the maximum originally intended.

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The debt agency has been helped, of course, by the fact that the Government’s general surplus was forecast in April to hit €10 billion this year, turbocharged by tax receipts from multinationals, and well ahead of the €6 billion originally projected late last year.

The NTMA hasn’t had to raise as little debt since the State was cocooned from global bond markets a decade ago when it was in the middle of an international bailout. It sold an average of about €16.5 billion of bonds a year between 2014 and 2021, including large issuances during the Covid-19 pandemic.

Refinancing needs

The State seems further protected in the coming years by Department of Finance forecasts that the general Government surplus will rise to €16 billion next year, before hitting €18 billion in 2025 and almost €21 billion the year after.

At the same time, an average of less than €13 billion of Government debt falls due a year over the same period, according to NTMA figures, leaving it with lower refinancing needs compared to most other European countries. Moreover, the weighted average rate on State borrowings is 1.5 per cent.

But, of course, without the windfall taxes, the Government balance sheet would have been in deficit last year and in 2023. The Economic and Social Research Institute’s downgrade last week of Irish gross domestic product for this year to 0.1 per cent from 5.5 per cent, previously, following a marked slowdown in pharma exports, shows how quickly things can turn for big parts of the multinational sector.