Government accounting hides scale of off-balance sheet debts
Nervous accountants look away now. The Government is assembling a mountain of off-balance sheet borrowings and contingent liabilities that would make even the most creative bookkeeper a little jealous.
According to the NTMA, the Government's official treasury department, government debt stood at a manageable 64.5pc of GDP at the end of last year -- well below the EU average of 78pc.
In fact the NTMA tells us, this is the "gross'' figure and if you include the State's "cash'' balances and what is in the National Pension Reserve Fund, this gross figure would then fall to a net 38pc -- light years away from the likes of Italy and Greece, not to mention the US.
But of course government statistics hide a multitude of blemishes and wrinkles and these figures make no allowance for at least three off-balance sheet items.
First up is the government guarantee scheme which, when originally introduced in September 2008, was propping up €440bn of liabilities across the banking sector. Clearly nobody expects the Government to pay out on these, but nevertheless there isn't a company in the world that would get away with having a contingent liability that size compared to its income.
Next up is NAMA. In that case, debt is being incurred via NAMA bonds with the agency allowed to pay out €54bn via these new instruments, some of which will be subordinated in nature. Again these borrowings will be off-balance sheet thanks to Eurostat which is accepting the argument that assets have been secured in exchange, ultimately allowing the Government to redeem these NAMA bonds.
If the NAMA bonds went on the debt directly, the figures listed above go to 112pc of GDP which would be a lot more concerning to the outside world.
Whereas once the Government only traded in standard Irish government bonds, it is now issuing and taking in all sorts of new exotic securities. There is the standard Irish government bond, the NAMA bond, the subordinated NAMA bond, the special investment share and now the latest form of government security, the promissory note.
These notes, which were devised brilliantly -- many would argue -- by NAMA's Brendan McDonagh, allow the Government to capitalise Anglo Irish and Irish Nationwide without having to take the cash hit up front.
Again they are unlikely to go on the national debt which is a blessing in the sense that the figures would then hurtle towards 124pc of GDP, very much red alert territory (unless you are Japan of course).
All of this is not the end of the debts or liabilities either; nobody is even breathing a word about the pension obligations facing the State and what they would do to the figures above.
So far the Government's off-balance sheet accounting has not disturbed anyone in the markets, mainly because most of the other countries are doing similar things or worse.
However, countries that have defaulted often default at debt levels way below 100pc debt to GDP or GNP -- with poor Argentina defaulting at just above 50pc of GNP earlier this decade.
Still the key consideration remains your previous record and Ireland has a blemish-free record on paying its debts. That should hopefully pre-occupy bond investors and take their eyes off the large liabilities lurking below the surface figures.