Emergency fund of €20bn will be used to pay debt
Published 08/12/2010 | 05:00
THE Government is to use its €20bn of cash to pay off some of the national debt, as markets continue to worry about Ireland's ability to repay all its loans.
The use of what is called the cash balances, regarded as an emergency fund, will begin as soon as next year, the Department of Finance has revealed.
The money is separate from that held in the National Pension Reserve Fund. The NTMA is responsible for overseeing the €20bn in cash.
Ireland is facing increasing debt payments and the cash will help to reduce the overall level of debt.
For example, in 2007 interest on debt was costing just over €1.6bn or 3.4pc of tax revenues.
But the interest paid on the national debt in 2010 will amount to €4bn or 12.6pc of tax revenues.
The national debt stood at just €37.6bn at the end of 2007, but it grew to €88.6bn at the end of November 2010.
Figures released yesterday show debt peaking in 2013 at 102.5pc of everything produced in Ireland (GDP).
This is despite huge borrowings needed in 2011 and subsequent years.
Finance Minister Brian Lenihan yesterday released a document saying the cash fund would "be run down over the forecast period".
The cash balances were worth €20bn at the end of June.
Despite the €6bn of cuts and tax rises announced, the country will still have a deficit next year of 9.4pc and 7.3pc the year after. This year's deficit is 11.6pc, not taking account of the banking rescues.
The budgetary projections released show that bank promissory notes are included as a form of capital spending and give an artificial gloss to the capital-spending figures. Taking these amounts out and the capital budget shrinks from €4.65bn to €3.5bn by 2014.
The Government has set itself ambitious targets in relation to spending, in a bid to reduce the its outlays from €54.5bn this year to €48bn in 2014.
These reductions are real reductions, not taking account of inflation.
Next year the State faces a very significant funding challenge and must raise €22.3bn. This consists of €17.7bn ordinary borrowing, plus it must repay an existing loan worth €4.6bn.
To raise this money, the State will go to the IMF/EU rescue programme, and also start drawing down the cash balances.