Forecast of 2.5% economic growth next year

IRELAND’S DEBT burden is sustainable and the economy is likely to deliver 2.5 per cent growth next year, a senior Department of Finance official told the Public Accounts Committee yesterday.

Secretary general Kevin Cardiff said the percentage of the State’s tax revenues eaten up by servicing the national debt would peak at about 20 per cent, based on current assumptions.

While this was “really quite onerous”, Mr Cardiff said it was lower than the level reached in the 1980s.

“On that measure it seems sustainable. It will be hard work but, yes, it can be sustained . . . on reasonable assumptions.”

He said Ireland has always repaid its debts and needed to convince markets that there was a will to continue doing so. The market response depended not only on its analysis of the Irish economy’s capacity to bear its debt, but also the view taken regarding the policy context in which Ireland operated at both a national and international level.

When asked whether a contingency plan has been drawn up in case of an Irish sovereign default, Mr Cardiff said while the department gave thought to a lot of scenarios it was focusing on ensuring that Ireland does not have to default on its debts.

He said Ireland had the advantage of being a wealthier country than Greece, and was also better prepared.

The department’s view on the sustainability of Ireland’s debt is based on assumptions relating to factors such as economic growth rates, the cost of funds, and fiscal adjustment targets being met. It estimated the economy will grow by 2.5 per cent next year and by 3 per cent in following years.

However, the department’s forecasting abilities came in for criticism at yesterday’s committee meeting. In 2009 the State’s tax take was almost €10 billion below the government’s original estimates.

Mr Cardiff said the department was now more conscious of the risks on either side of its baseline forecasts.He also said that an interest rate reduction of 2 per cent on Ireland’s bailout package would save the economy between €6 and €7 billion over the next seven years. Mr Cardiff was also questioned about some of the circumstances leading up to the banking guarantee in September 2009. He said Government advisers Merrill Lynch had been brought in at a late stage as another set of advisers had to step down because of a conflict of interest, adding that “a week in the process” was probably lost as a result.