Ireland set to record highest budget deficit in EU - report

IRELAND IS expected to record the highest budget deficit in the European Union as a percentage of its gross domestic product (GDP), according to a report on borrowing by European governments.

Ratings agency Fitch predicts Ireland will require borrowings of €47.3 billion this year, or 26.3 per cent of its GDP, the highest funding requirement in the EU.

The State's budget deficit is forecast to hit 9.6 per cent of GDP this year, according to Fitch - again the highest level in the EU.

While the deterioration in the public finances is described as "sharp", Fitch says it does not anticipate "public debt rising to levels that would threaten existing ratings".

Ireland has the highest available "AAA" credit rating with Fitch. A state's credit rating is important because it determines the price the state must pay for borrowings. Countries with the highest ratings generally pay lower interest rates on their loans.

"In Ireland's case the high gross requirement reflects partly the size of the deficit but more notably short-term debt," the Fitch report said. It notes that Ireland had sharply increased short-term borrowings to about €20 billion at the end of 2008.

"This has seen the share of short-term debt rise to 33 per cent of total debt, far and away the largest in developed Europe."

However, concerns over refinancing are significantly offset by the parallel build-up of cash balances, which stood at about €20 billion at end of 2008, the report noted.

Despite this borrowing requirement the debt ratio will only reach about 60 per cent of GDP by the end of 2010, due to the relatively low Government debt up to 2007.

Fitch projects that European governments will have to raise nearly €2 trillion this year, or 17 per cent of GDP - around 45 per cent more than last year.