National debt falls £1bn in buoyant 1998


The national debt fell by more than £1 billion last year, leaving the Republic with the third-lowest level of indebtedness in the European Union after Luxembourg and Britain.

Figures published by the National Treasury Management Agency on New Year's Eve showed that the national debt fell to £29.5 billion at the end of 1998 from the end-1997 level of £30.7 billion.

Using the EU's general government debt measure, it stood at £31.2 billion, down from £32.3 billion, reflecting the buoyancy of the Government's finances which had an estimated general surplus of around £1 billion.

A gain of some £160 million as a result of foreign exchange rate movements also contributed to the fall in the debt. A significant portion of the exchange rate impact was due to the drop in sterling against the pound, the NTMA said.

The fall in the debt level and strong growth in Gross Domestic Product last year mean the debt/ GDP ratio is now down to 52 per cent from 61 per cent at the end of 1997 and is nearly half the level of 102 per cent recorded at the end of 1989.

A month ago, the NTMA's chief executive, Dr Michael Somers, said the national debt stood at £28.3 billion, while in the Budget, the Minister for Finance, Mr McCreevy, allowed for a 1998 Budget surplus of £668 million.

The agency said the cost of servicing the national debt, which now stands at 75 per cent of the EU average, was £223 million below budget. Interest payments totalled £2.25 billion last year, which meant that 13p in each tax pound went on servicing the debt, compared to 15p in 1997 and 27p in 1990.

Dr Somers said the agency had undertaken a number of measures during the year to prepare for the introduction of the euro, while further measures were planned.

A major restructuring of the foreign debt portfolio, involving the repayment of some £748 million of foreign currency borrowings, means that some 94 per cent of the debt will be held in euros as of January 1st, 1999, with the balance held in sterling.

The agency has also appointed two new market-makers, Deutsche Bank and Credit Agricole Indosuez, to replace Credit Suisse First Boston and UBS.

"They were not adding a huge amount to what we were doing. We hope the new ones will be more active," he said.

Significantly, the two new market-makers are based in Paris and Frankfurt, where the NTMA hopes to attract interest from French and German institutional investors, such as life assurance companies, which will now be able to invest throughout the euro zone rather than just in their home market.

Irish bonds will account for just 1 per cent of the total euro bond market and the agency faces a challenging task to attract new investors to the market. It will have to market Irish debt further afield as at least some of the Irish investors who currently hold 80 per cent of pound debt are likely to diversify into other euro markets.

In an effort to boost liquidity in the bond market, the NTMA is planning a securities exchange programme under which it would buy back £13 billion of bonds at market prices and exchange them for bonds with lower coupons - or rates of interest - of around 4 per cent.

The proposal originally ran into some difficulties with the Department of Finance because it will lead to an increase in the notional value of the national debt of between £2 million and £3 billion and a consequent deterioration in the debt/GDP ratio.

But the NTMA said that all parties involved in the negotiations now recognised the compelling need to do this. It is keen to carry out the exchange programme "sooner rather than later" but the buy-back will involve some tax changes which will have to be provided for in the Finance Bill.

The NTMA also plans to join a real-time interbank settlement arrangement, which will allow the agency to deal as late in the day as other issuers, sometime in the first half of 1999.

Meanwhile, Mr McCreevy is considering a number of other areas of involvement for the NTMA but Dr Somers declined to comment on what they were other than to say two separate pieces of legislation would be needed to give effect to the new projects.