Friday 19 January 2018

Sharp jump in interest bill from 2015 - IMF

The IMF's financial counsellor and director Jose Vinals answers questions during the 'Global Financial Stability Report’ press conference at the IMF headquarters in Washington yesterday
The IMF's financial counsellor and director Jose Vinals answers questions during the 'Global Financial Stability Report’ press conference at the IMF headquarters in Washington yesterday

Thomas Molloy

IRELAND'S interest bill will rise sharply once the country stops borrowing from the €85bn bailout package, the IMF forecast in a report yesterday.

The country could be forced to pay more than 6pc to borrow money in 2015, according to the IMF's latest report on global financial stability.

Most economists say that countries run into trouble when the cost of borrowing outstrips economic growth.

The IMF calculates that Ireland will soon be paying more than 20pc of revenue to service debts, chipping away at the money left for other expenses such as hospitals and schools.

The report adds that Irish and German banks will need the most funding in the next two years. Banks globally face a $3.6tn (€2.5tn) "wall of maturing debt" coming due in the next two years.

The rollover requirements were most acute for Irish and German banks, the fund said.

"These bank-funding needs coincide with higher sovereign refinancing requirements, heightening competition for scarce funding resources," the IMF added.

While praising Ireland and some other countries for making efforts to crystalise losses, the fund called for these measures to be broadened and reinforced across the country's banking sector.

Yesterday's report says many advanced economies are "living dangerously" with high debt burdens, and face the difficult task of trying to pare deficits without choking off the economic recovery.

Increasing the quantity and quality of capital would provide a greater cushion against future losses and help to restore access to funding markets, it said. Overall, the IMF said global financial stability across the world had improved over the past six months.

The most pressing challenges in the coming months would be the funding of banks and sovereigns, particularly in vulnerable eurozone countries, it said.

US banks built up capital buffers in 2009, when regulators completed a set of stress tests that revealed some large holes. But European banks still needed to raise a "significant amount of capital" to regain access to funding markets, the fund said.

"It is . . . imperative that weak banks raise capital to avoid a pernicious cycle of deleveraging, weak credit growth, and falling asset prices," it warned.


The European Central Bank's upcoming stress tests provide a "golden opportunity" to improve bank balance-sheet transparency and reduce market uncertainty about the quality of assets on banks' books, the IMF said.

European banks won't be able to obtain all the necessary capital from markets, and public money might have to fill some of the gaps, it added. Banks could also cut dividend payouts and retain a larger portion of earnings.

"Overall, a comprehensive set of policies -- including capital-raising, restructuring and, where necessary, resolution of weak banks, and increased transparency about banking risks -- is needed to solve banking system vulnerabilities," it said.

"Without these reforms, downside risks will re-emerge."

The IMF said banks' exposure to troubled sovereign debt was "uncertain", which added to the funding strains.

It said government debt was generally high and on a worryingly upward path in many advanced economies.

It repeated its warning that the United States and Japan faced particularly dangerous debt dynamics.

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