State should use low borrowing costs to repay IMF – Goodbody
IRELAND should take advantage of its near record low borrowing costs by locking in low funding costs for longer and pushing to repay some of the higher-interest bailout loans, Goodbody has said.
The stockbroker said the Government must take further innovative moves to take advantage of the near record low bond yields.
Borrowing costs yesterday hovered around 2.7pc for 10-year debt. Ratings giant Moody's upgraded Ireland's sovereign debt by two notches to Baa1 on Friday. The upgrade being higher than expected by both analysts and the Government.
Goodbodys said that, although the country's funding position remains strong, there remains a number of ways in which the Government can take advantage and improve its lot.
It suggested one such way would be to repay the bailout loans from the International Monetary Fund (IMF), which Goodbody points out has a interest rate of about 5pc – higher than those from Europe. The €22.5bn of loans from the IMF equates to roughly a third of the bailout package.
But paying back the IMF early would trigger automatic repayment of some of the bigger, and less onerous, EU share of the bailout, under a clause in the original deal.
Goobody economist Dermot O'Leary, however, suggests the dual repayment aspect could be renegotiated with the troika.
"Although Ireland's funding position is now very comfortable, there are still a number of ways that the country can take advantage of this situation," Mr O'Leary said.
"With economic growth returning and ratings agencies finally giving the country credit for its efforts over recent years, momentum in the Irish story remains strong.
"Further innovative moves should be implemented to take advantage of record-low borrowing costs."
Mr O'Leary also suggested that the State's debt management agency, the National Treasury Management Agency (NTMA), could sell much longer dated paper, thereby locking in low funding costs for longer.
He also suggested that the NTMA could offer bond switches.
Analysts, including global bank Citi's chief economist Willem Buiter, have already raised the possibility of the Government refinancing the IMF share of the €67.5bn bailout to reduce borrowing costs.