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Tuesday 23 September 2014

State hopes to save €375m a year with new deal over debt

Published 29/07/2014 | 02:30

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Michael Noonan,TD,the Minister for Finance
Michael Noonan,TD,the Minister for Finance

IRELAND will pursue a deal with lenders in Europe that would save up to €375m a year for taxpayers, by replacing €15bn of expensive IMF rescue loans with cheaper debt from the bond markets.

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It follows a hike in the interest charged by the IMF earlier this year, and revealed by the Irish Independent a week ago.

The deal, if secured, could hold the key to easier Budgets in future, by freeing up some of the cash that currently goes to service the national debt.

The news came as the Central Bank published its most optimistic forecast for the economy since before the crash.

Finance Minister Michael Noonan said the figures highlighted the Government's greater flexibility ahead of the October Budget.

"It is quite clear now that we will not have to adjust (the Budget) by the full €2bn," he said.

On the issue of our debt he said he would now pursue a deal in Europe on the fringe of finance ministers' meetings in September and could begin swapping IMF debt for bonds borrowed on the market before the end of the year.

Sign-off is needed from political leaders across Europe because the European share of the Irish bailout is supposed to be repaid at the same time as the IMF loans. The IMF hiked the interest it charges on much of the €22.5bn in loaned to Ireland under the bailout to 4.99pc.

It is now more than double the interest on European bailout debts, including loans from the European rescue funds and so-called bilateral loans from the UK, Denmark and Sweden.

The IMF interest bill compares with the 2.2pc Ireland would pay to borrow for 10 years on the markets.

A deal will stop short of fully repaying the IMF in order to preserve the troika structure, the minister said.

The National Treasury Management Agency (NTMA) is also looking at holding on to less borrowed cash as a cushion against future shocks, which would also bring down borrowing costs, Mr Noonan said.

Meanwhile, the Central Bank issued an upbeat assessment, predicting economic growth will be faster this year than previously thought, at 2.5pc compared with 2pc. Growth next year will be 3.3pc, it said.

Encouraging

"It's been a long while since we've published numbers like this, what we see are encouraging signs that there is a recovery emerging," said Central Bank economist John Flynn.

But he warned against the Government significantly easing up on cuts and tax hikes in the October Budget, saying the priority should be to continue to reduce the spending deficit to less than 3pc in 2015.

It is too early to say what the precise increase in taxes and spending cuts will be, Mr Noonan said.

The Government will stick to the target to bring the spending deficit below 3pc of gross domestic product next year, Mr Noonan added.

Irish Independent

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