SBCI must be on Government's books
The national debt is to be fractionally higher than hoped after the EU's statistics office ruled the Strategic Banking Corporation of Ireland should be kept on the Government books.
But it is likely to have a negligible impact on the wriggle room for Finance Minister Michael Noonan in the Budget.
The Department of Finance confirmed Eurostat had ruled that the SBCI, which was established to boost credit to small and medium-sized business, must be included on the State's balance sheet. The Government had hoped to keep it off balance sheet, and therefore not impacting on the state's accounts.
A spokesman for the Department said Eurostat felt that SBCI was a so-called "captive financial institution", or an instrument of government policy.
"The Government has a policy of lending money to SMEs. We set up this banking corporation specifically to do that. It's controlled by government because it doesn't have the freedom to move into other areas of the market, it can only lend to SMEs," he said.
He added that in the initial years, the impact of it being on balance sheet will have a negative effect on the debt position, but it will subsequently have a small positive impact.
Accounting for the SBCI on the State's books last year resulted in €200m being added to the general government debt.
The new SBCI fund is the first in Ireland launched with financial support from Germany's federal strategic lender KfW following a deal in 2013 between Taoiseach Enda Kenny and German Chancellor Angela Merkel. Announced in May of last year, the State-backed body will make up to €800m available for small and medium businesses under favourable terms.
Under the scheme, existing main street banks will borrow from the SBCI and lend to SMEs.
The banks will assess the risk of lending and will continue to hold that risk.
But the lenders must show that the lower cost of sourcing the funds is passed on to SMEs. Money will initially come from German development bank KfW, the Ireland Strategic Investment Fund and the European Investment Bank.