Brexit cash allows exchequer leeway in age of Covid-19

NTMA has used low borrowing rates over years to build €26bn reserve

 The threat of Brexit brought about  caution in 2019, both in terms of budget management and having cash to hand.   Photograph: Getty Images

The threat of Brexit brought about caution in 2019, both in terms of budget management and having cash to hand. Photograph: Getty Images

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The economic crisis has hit at extraordinary speed and ferocity. Yet in terms of where the State finances where before it hit, we have some degree of comfort. Naturally we are now going to end up in a big deficit and with a higher national debt level, but it could have been worse.

We spent most of last year cursing Brexit and the threat it posed to the economy.Yet the imminent risk last October of a no-deal exit by the UK at the end of December was the key factor in allowing Finance Minister Paschal Donohoe to get his colleagues to agree to a budget with little by way of tax cuts or spending increases.

This was most unusual, if not unique, in the experience of modern Irish with a general election in the offing. But it did leave the exchequer finances with a bit more leeway to absorb the extraordinary Covid-19 hit,

There is also reason to nod towards the cautious people in the National Treasury Management Agency (NTMA) who had used the rock bottom borrowing rates of recent years to build up a bag of some €26 billion in cash to pay for significant bond redemptions due this year.

This cash pile, even taking into account the redemptions due, and an additional €6 billion raised at less than 0.25 per cent after the crisis broke, leaves the exchequer with decent reserves for the moment.

More will need to be raised, but crucially the NTMA will hope to pick its time to be able to do so. You just don’t want to be going to markets with an empty wallet and an urgent need for cash.

A lot of the extra resources from corporation tax in recent years did go into extra spending, notably in health. But the threat of Brexit did lead to caution in 2019, both in terms of budget management and having cash to hand.

This is now proving very useful even if we could again face the threat of the UK crashing out of the EU trading regime next December if some kind of a deal is not done, or a delay – to which the UK says it is opposed – is not agreed.

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