Cash pile of €30bn will cushion State amid rising market rates, says NTMA

Cash also expected to shield Government’s finances in the event of a drop in corporate taxes or economic slowdown

The National Treasury Management Agency (NTMA) said the €30 billion cash pile it has built up, and relatively low levels of maturing debt in the coming years, will cushion the State as market borrowing rates rise.

The cash balances have grown from €17.5 billion at the end of 2020, as the NTMA tapped bond markets to pre-fund future financing requirements in a low-rates environment, the agency said as it unveiled its annual report. Minister for Finance Paschal Donohoe said at a press briefing on the report that the cash will also shield the Government’s finances in the event of a drop in corporate taxes - which are currently underpinning forecasts for budget surpluses for this year and next - or an economic slowdown.

“Whilst the cost of servicing Ireland’s debt will increase from 2022 onwards, Ireland’s borrowing position remains strong, with a significant cushion in place to mitigate the impact of higher borrowing rates,” said the NTMA’s new chief executive, Frank O’Connor.

“This arises from our multi-year programme of pre-funding and locking in the benefits of unprecedented low interest rates for the long term, giving us more than €30 billion in cash and a long average maturity of 10.7 years, one of the longest in Europe.”

The NTMA has raised €5.75 billion in international bond markets so far this year, representing 60 per cent of the lower end of its full-year target fundraising range of between €10 billion and €14 billion. The agency said it expects its average interest rate will be little changed at about 1.5 per cent in 2022, compared to last year. The NTMA’s interest bill stood at €3.3 billion last year, down from a crisis-era peak of about €7.5 billion in 2013.

However, the market interest rates on the State’s bonds have risen over the past six months, in line with the wider debt market, as central banks have set off on a path of rate hikes to rein in soaring inflation. The European Central Bank (ECB) is on track to raise rates later this month for the first time in more than a decade.

The yield on benchmark 10-year Irish Government bonds currently stands at about 1.84 per cent, up from 0.21 per cent at the end of last year. Still, it remains well off a peak of over 14 per cent that was hit in 2011.

The NTMA is preparing to repay about €9 billion of maturing debt next year, including €2 billion owed under the European element of its crisis-era international bailout.

The Government unveiled plans earlier this week for a €6.7 billion package of spending increases and tax cuts in Budget 2023, some €1.7 billion higher than previously envisaged, as it prepares a series of one-off measures to tackle the cost-of-living crisis.

While the blueprint sees a budget surplus being run for both this year and next, this is being underpinned by exceptionally high levels of corporate tax receipts.

The Central Bank warned on Thursday that as much as €8 billion or just over half of the Government’s corporation tax receipts might be “unsustainable” or at risk.

In its latest quarterly bulletin, the regulator said the volatility of corporation tax and its concentration among a small number of multinational firms was now one of the chief threats to the public finances.

It noted that receipts from the business tax swelled to a record €15.3 billion last year, which was 40 per cent up on the 2019 figure, while half the receipts came from just 10 large companies, creating “a considerable concentration risk”.

Mr Donohoe said he has long acknowledged the risk attached to the State’s exceptionally high level of corporate tax receipts in recent years. He said the €3 billion of additional corporate taxes gathered in the first half of this year over the same period in 2021 has been used to improve the national finances, driving a €4.2 billion exchequer surplus for the period, rather than for additional spending.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times