The National Treasury Management Agency (NTMA) may have to borrow as much as €6.5 billion (£5 billion) to refinance part of the national debt next year as the days of running a substantial Exchequer surplus come to an end. And the expected reduction this year in the scale of the surplus as a result of the economic slowdown means that the NTMA is at least £1 billion (€1.27 billion) short of the money it needs to repay another tranche of the national debt in 2001.

Around £2.5 billion of debt is due to mature this year, around the same size as the Exchequer surplus originally forecast by the Department of Finance.

However, with the surplus now estimated at only £1.5 billion - and possibly even lower - the NTMA is likely to use short-term debt to make up the shortfall. But there is still likely to be some repayment of the debt overall this year.

The figures will also be affected by how the Minister for Finance decides to use up to £600 million of privatisation receipts. The sale of TSB to Irish Life raised €430 million while the sale of ACC is expected to raise anything from €100 million to €250 million, although there is no guarantee that that will be achieved this year.

The receipts from the sale of Telecom Eireann were used to boost the pension reserve fund and many had expected the additional proceeds to be used in the same way. However, with the dramatic downturn in the Exchequer's finances, Mr McCreevy may be tempted to use the funds to boost the surplus and hence pay off debt this year.

Next year, however, the NTMA will have to put a substantial refinancing programme in place. There is around €5 billion of debt that is due to mature in 2002 and there will be no surplus to repay any of this, according to Mr Oliver Mangan, economist at AIB.

The NTMA will have to go to the bond markets for the necessary funds and is likely to do so in conjunction with a new switching and restructuring programme for bonds. Together with the refinancing of whatever short-term loans it takes out this year, this could mean an overall issuance of around €6.5 billion, far higher than originally estimated, according to Mr Mangan.

The refinancing of the national debt will be a substantial boost for bond markets, which have been suffering in comparison with equities since the advent of the euro.

According to Mr Mangan, the bond market will be back next year. On top of this, the NTMA is likely to introduce two new bonds next year, a five-year bond and a 10-year bond. These are the most favoured by international investors.

Because there was no new issuing of bonds this year, the issues currently available are becoming out of date and would be hard to sell at a competitive price. These bonds mature in 2005 and 2010 and are, effectively, three-and-a-half-year and eight-and-a-half-year issues.

The new bonds are likely to be issued early next year and it is possible that special terms encouraging investors to switch from older bonds to the newer issue will be offered.

This would allow the new issues to be a substantial size. Generally, international managers prefer larger issues, which are then easier to buy and sell.

The NTMA has a good reputation abroad for the way it operates and, as a result, can raise money more cheaply than some other European governments such as Spain.

To maintain this, it will probably have to offer attractive switching terms, which could add more than another €1 billion to the overall programme, possibly bringing the total to €7.5 billion.