State gets approval to repay €5.5bn in bailout loans early

Paying off the IMF loans early should save State €150m in debt-servicing costs

Christine Lagarde, managing director of the International Monetary Fund. Photograph: Jason Alden/Bloomberg

Christine Lagarde, managing director of the International Monetary Fund. Photograph: Jason Alden/Bloomberg

 

European authorities have given the State the go-ahead to fast-track the repayment of €5.5 billion in outstanding loans from the International Monetary Fund (IMF), Denmark and Sweden.

The European Financial Stability Fund (EFSF) – the euro zone’s crisis-era bailout fund – approved the plan on Monday.

It paves the way for the State to repay the remaining €4.5 billion on its IMF bailout loan and another €1 billion in bilateral loans from Sweden and Denmark.

Under the terms of Ireland’s €67.5 billion international bailout in 2010, the EFSF – a forerunner to the current European Stability Mechanism (ESM) – needs to waive its right to be proportionally repaid early before other creditors can receive the money they are owed.

Paying off the higher-cost IMF loans early is expected to save the State around €150 million in debt servicing costs.

“I welcome Ireland’s intention to fully repay the IMF and the bilateral loans granted by Denmark and Sweden in 2011-2013,” ESM managing director Klaus Regling said in a statement.

“These early repayments will lower Ireland’s debt-service costs, improve its debt sustainability outlook and therefore send a positive signal to the markets,” he said.

Waiver granted

The waiver was granted on the proviso that the State ensured the transaction was cost-effective and that the National Treasury Management Agency would maintain a comfortable liquidity position on behalf of the State to withstand any unexpected risks.

It also specified that the weighted average maturity of its outstanding debt remains high and that the IMF remain part of the EU post-programme missions until 2021.

Ireland’s €67.5 billion bailout in 2011 was largely split between the IMF and two EU funds, the European Financial Stability Facility (EFSF) and European Financial Stabilisation Mechanism (EFSM).

Ireland’s fast-track plan also required the waiver of the EFSM, which was also granted yesterday.

EU finance ministers agreed in 2013 to extend the average maturity of Irish and Portuguese loans from the two EU facilities by up to seven years, to 19.5 years, to smooth the debt repayments of both countries.

The ESM was established in 2012 as part of the EU’s response to the financial crisis and specifically to replace EFSF and EFSM, which had been established as temporary vehicles back in 2010.