Minister for Finance Simon Harris has defended the likely need for the State to borrow in the coming year to fund commitments to two sovereign wealth funds, even as the National Treasury Management Agency (NTMA) warned on Wednesday that the interest bill on the national debt is on track to double to about €6 billion by the early 2030s.
The Irish Fiscal Advisory Council (Ifac) highlighted last month that the Government will need to borrow in the future to adhere to a commitment to invest 0.8 per cent of gross domestic product (GDP) annually into the Future Ireland Fund and Infrastructure, Climate and Nature Fund. The funds were established in 2024 as a way of putting windfall corporation tax revenues to work to help meet long-term liabilities of the State.
That was based on medium-term net-spending plans and gross Government debt estimates outlined by the Department of Finance in April.
NTMA chief executive Frank O’Connor said the agency’s annual interest bill will likely double from €3 billion currently to “somewhere in the region of €6 billion” by the early 2030s.
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This will result from the NTMA having to refinance at higher rates debt raised when global borrowing costs were at ultra-low levels in the past – and the fact that Government debt is poised to rise from €210 billion at the end of last year to “close to” €250 billion.
About €20 billion of debt will need to be refinanced both in 2029 and 2030, the highest levels in about a decade, including initial repayments of European Financial Stability Facility (EFSF) loans granted during the State’s international bailout 16 years ago.
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“Should borrowing be required to populate the funds, that, in and of itself, is not a bad thing,” Harris said in response questions at an NTMA press briefing on Wednesday.
“In fact, if you’re putting in place funds that are investing in the future competitiveness and demographic needs of your country, that is potentially a very good use of borrowing. But it may not be required, and these will be calls that will need to be looked at on an annual basis.”
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While the Government plans to ramp up capital spending on infrastructure in the coming decade under the National Development Plan, Ifac officials said current spending − covering the day-to-day costs of services and income supports – is on track to account for 80 per cent of the forecast growth in total spending out to 2030.
O’Connor said that the investment commitment to the funds continues to “resonate very well” with global investors in Irish debt.
The investment committee of the Future Ireland Fund (FIF), which is aimed at growing to €100 billion of assets by 2025 to help pay for additional healthcare and pension costs associated with a growing and ageing population from 2041, decided in January to initially put 80 per cent of its assets into equities, with the remainder in bonds.
Some 90 per cent of the money in the smaller second fund, the Infrastructure, Climate and Nature Fund (ICNF), will be put to work in low-risk bonds and deposit accounts, with the remaining 10 per cent in public higher-risk bonds.
O’Connor said that the FIF is phasing its entry into equities over the space of a year and is “conscious” about the current debate about stock valuations globally, particularly in the artificial intelligence (AI) space. He noted that the fund is designed very much “for the long term”.
