Davy warns against spending €5bn left in pension fund
PLANS to spend the remaining money in the national pension fund on stimulus investment, risks tipping the national debt into dangerous territory, a new analysis suggests.
A report from Davy Stockbrokers says the important figure is "net debt," after allowing for assets held by the government, such as the pension fund, and Ireland's favourable net position is often ignored.
"I meet people in New York and London and they talk about Irish debt of 120pc of GDP. In fact, Ireland holds liquid assets worth 12pc of GDP," Mr Conall MacCoille, chief economist at Davy, said.
The Exchequer held €13bn in liquid cash balances at the end of last year, according to Budget figures, and there is some €5bn remaining in the National Pension Reserve Fund (NPRF).
"According to the latest government figures, the net debt/GDP ratio, holding NPRF assets constant, would peak at 109pc of GDP in 2015," the report says. But Mr MacCoille believes the growth forecasts underpinning this figure look optimistic, and net debt could peak close to 120pc.
Should growth fall short of the forecasts by one percentage point, it could add 10 percentage points to the national debt in 2015, the report says.
"A one percentage point shortfall is not an overly pessimistic scenario, but it would leave the gross national debt at 126pc of GDP, instead of the 117pc in the plan."
With markets traditionally doubtful about whether countries can sustain debt in excess of 110pc of GDP, even spending the 3pc of GDP held in the NPRF could make a difference on such figures.
The report says Ireland's creditworthiness could benefit from the sale of some banking investments which the Government was forced to make during the crisis.
It estimates the value of the stakes in Bank of Ireland and the Irish Life at around 3pc of GDP.
"It remains an open question whether the Government can realise value from the intangible assets comprising its shares and contingent capital in AIB and Permanent TSB.
"What is clear is that the Government's net debt position may eventually benefit from any improvement in the profitability of the Irish financial sector.
"Any restructuring of promissory notes may include proposals for the transfer of banks' loss-making tracker mortgages into a 'warehouse' vehicle (which would improve their profitability)".
The report says the remaining €8bn of tax rises and spending cuts to come in the current cutbacks plan looks small compared with the €25bn achieved so far.
But, with indirect taxes and local charges expected to contribute 56pc of the tax rises, "the evolution of the household charge into a fully fledged property tax is a key element of this strategy."