NTMA warns on Irish debt ‘vulnerabilities’ as ECB mulls next move

Government interest bill running at 8 per cent of revenue, twice the European average

Ireland’s high debt and interest bill compared with Government revenue leaves it vulnerable as investors weigh when the European Central Bank will end the euro zone’s ultra-loose monetary policy, the State’s debt agency has warned.

The chief executive of the National Treasury Management Agency (NTMA), Conor O'Kelly, noted on Monday that the Government's debt, at more than €200 billion, is 275 per cent that of its revenue, compared with an European Union average of 165 per cent.

Its annual interest bill is running at 8 per cent of revenue, twice the EU average.

Both measures put Ireland around the same level of debt as Spain, Italy and Portugal, even as the Republic has managed to slash its debt relative to gross domestic product (GDP) from 123 per cent to 75 per cent in the past four years as the activities of multinationals in the State drove growth.


“So, you can see the kind of company we’re keeping there. It’s probably not where we’d want to be in terms of where . . . our bonds trade in the market place,” Mr O’Kelly said at the publication of the NTMA’s annual report.

The market interest rate, or yield, on euro-zone government bonds has surged in the past two weeks amid investor speculation about when the ECB will ultimately scale down its €2.3 billion bond-buying programme, known as quantitative easing (QE), which is designed to boost inflation and growth.

The yield on Germany’s benchmark 10-year bonds have jumped from 0.225 per cent to as high as 0.58 per cent last week. Irish yields have endured a similar increase.

Rate differentials

Mr O’Kelly said it was likely that bond yields would rise further and that rate differentials between Germany, Europe’s largest economy, and other countries would widen when the ECB finally decides to unwind its QE programme.

Still, the NTMA has reduced its refinancing obligations between 2017 and 2020 from €70 billion to less than €40 billion in recent times by selling debt to boost its cash balances to €21.6 billion, buying and cancelling bonds related to the refinancing of Anglo Irish Bank’s bailout and allowing investors holding €3 billion of bonds due to be repaid in the near term to switch into longer-dated debt.

As of last month, the NTMA had bought and cancelled €7.5 billion of bonds from the Central Bank, which were related to the State’s refinancing in 2013 of the bailout of Anglo Irish Bank, by then renamed Irish Bank Resolution Corporation. The Central Bank received €25 billion of Government bonds in February 2013 under a complex restructuring of so-called promissory notes which were originally used to rescue the now-defunct bank.

The NTMA has sold €9.35 billion of bonds so far this year and plans to auction a further €750 million of debt on Thursday, bringing it well inside its full-year target of between €9 billion and €13 billion. Mr O’Kelly said he had no plan to increase the full-year objective.

Ireland now has the longest average maturity debt profile in the euro zone, according to the NTMA, at 11.7 years at the end of 2016, compared with about seven for the wider currency region.

Mr O’Kelly also said that while there is a public debate over whether the Government should prioritise spending on infrastructure projects or set aside hundreds of millions of euro in a “rainy day” fund, investors are likely to be “ambivalent towards that choice”.

“They’d see that as long-term capital being spent one way or the other,” Mr O’Kelly said, adding that investors would not want to see increases in current expenditure for the day-to-day running of the State.

He said public-private partnerships should be availed of more to keep capital spending off the State’s balance sheet and take advantage of cheap money as bond yields remain at low levels and international investors hunt for returns.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times