Monday 19 August 2019

State paid €60bn in interest in the 10 years since the crash

The National Treasury Management Agency has today published its 2018 Annual Report and delivered a midyear update for 2019. Pictured at the report launch were Minister for Finance Paschal Donohoe, TD, left, and NTMA Chief Executive Conor O'Kelly. Photo: Iain White - Fennell Photography
The National Treasury Management Agency has today published its 2018 Annual Report and delivered a midyear update for 2019. Pictured at the report launch were Minister for Finance Paschal Donohoe, TD, left, and NTMA Chief Executive Conor O'Kelly. Photo: Iain White - Fennell Photography
Donal O'Donovan

Donal O'Donovan

The cost of servicing Ireland's national debt has been three times higher since the crash than in the decade before, and is set to remain a major factor in the State finances for decades to come.

However, an expected €500m saving as a result of the plunging cost of interest on the national debt has already been factored into Budget spending plans for next year, Paschal Donohoe said yesterday.

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That Budget plan for a €600m surplus in 2020 includes shifting savings on interest bills into so-called 'voted expenditure' that is available to be allocated by ministers, the minister said.

National Treasury Management Agency (NTMA) CEO Conor O'Kelly said yesterday that the bill for servicing the national debt will be €3bn lower next year than it was at the peak in 2014, even though the overall debt is higher. But debt costs will be €4.5bn and are set to remain elevated for years, he said.

Over the past 10 years, servicing the debt has cost the State €60bn. But borrowing costs for eurozone countries including Ireland have fallen to record lows this year, boosted by expectations the ECB will continue prop up the market.

Ireland has benefited in particular because it had large debt payments falling due in that period that have been refinanced at a lower cost, and from the improvement in Ireland's debt rating.

However, NTMA chief executive Conor O'Kelly warned that super-low borrowing costs will not last forever, and Ireland's debt levels remain high.

"It is a mountain of debt," Mr O'Kelly said. "The best way to get down a mountain is very slowly and to stick to the path." "As we look past Ireland's unusually high refinancing requirements or "chimneys" out to 2020, we must remain conscious of the challenges ahead, including the risks arising from Ireland's elevated debt levels," Mr O'Kelly said.

The national debt quadrupled to €200bn after the financial crash and the bank bailouts. It is set to remain at that elevated level well into the future.

While borrowing costs have fallen Ireland's interest bill as a percentage of Government income - or taxes paid here - is among the highest in Europe, even with costs having fallen.

"When you are highly indebted, whether its a household, corporation or country, the single best way to mitigate against the potential effects of a new downturn is to pay down that debt," Mr O'Kelly said.

Finance Minister Paschal Donohoe said he favoured running surpluses over an extended period to pay down the debt, rather than rely on growth to flatter the headline figures.

But that could change in the event that the UK crashes out of Europe with a no-deal Brexit. In that scenario the Government could borrow to sustain spending, the Minister said.

Irish Independent

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