State could sell bank shares to cut debt, says NTMA chief
Ireland's vulnerability to rising interest rates has been insulated to some extent by bond deals that have pushed repayments on the national debt out into the future, but the true scale of government borrowing remains large, the head of the NTMA has warned.
However, investors who lend to the State see the potential sale of Government stakes in the banks as an opportunity to cut that debt in a meaningful way, he noted.
"While the decision is a matter for the Government, there are benefits to doing that sooner rather than later," Conor O'Kelly, CEO of the NTMA said, at the Alternative Investment Management Association Global Policy & Regulatory Forum 2018 last night.
The comments tally with those of AIB CEO Bernard Byrne in December, who said that the Government should consider selling its remaining 71pc stake in that bank, while market conditions were good.
Shares in AIB and other rescued banks have fallen since then.
Meanwhile, Mr O'Kelly said the European Central Bank's (ECB's) ultra-loose policy in recent years has benefited Ireland by driving down borrowing costs, but that the NTMA has been "planning for life beyond QE (since) the day it began".
The low ECB interest rates have shifted the benefit of bonds from bondholders to borrowers in recent years, and Ireland has been a big beneficiary, he said.
However, he told the audience of money managers at Dublin's Intercontinental Hotel that Ireland's relative debt level is still one of the highest in the eurozone, as a result of the financial crash and bailout.
"In absolute terms, our debt level remains high at over €200bn - our high debt is a permanent legacy of the crisis," he said.
According to the standard debt-to-GDP measure used by the European Union, and typically looked by markets Ireland's indebtedness has declined sharply in recent years, but Mr O'Kelly said the investors aren't looking at that standard gauge in relation to Ireland.
"Our debt to GDP looks positive after falling from 120pc to 72pc, but investors no longer consider that the key indicator - they place more emphasis on our absolute debt and other measures," he said.
By those measures Irish debt levels are more worrying.
Using an alternative ratio of debt to Government income, Ireland ranks well below the European average, he noted.
Ireland's national debt of 2.7 times Government revenues is significantly worse than the EU average, where the debt burden is 1.9 times income, he said.