I thank the Chairman for the opportunity to attend here today and I hope I can be of some assistance. Rather than reading from my statement, it may be worthwhile to give an overview of the National Treasury Management Agency, NTMA, and explain how we are seeing the world through our lens, if one likes, as a debt manager. I will then talk in more detail about the Ireland Strategic Investment Fund which is more specifically relevant to the work of this committee. A couple of other areas of the NTMA also touch on the housing sector and I will also comment on them. I will then take any questions that members might have.
We all know that economic conditions are very favourable regarding economic growth and all of the numbers around Ireland's improving credit profile. That has been reflected in the upgrades from the rating agencies.
Even long before this, investors in the bond market had re-rated Ireland significantly in recent years. Some years ago we were a peripheral European country in terms of where we traded in the market, our yield and our credit spread over Germany and other countries. We have now moved into a more semi-core and we are now more compared to Belgium and France rather than Spain, Italy, Greece and peripheral countries. This reflects the improving economic conditions.
The credit of the country has improved significantly due to this economic performance. Another factor is that the interest rate environment has been favourable because of the policies being pursued by the European Central Bank. Quantitative easing, etc., has meant that interest rates are extremely low. The combination of low interest rates and Ireland's improving credit rating have meant that the National Treasury Management Agency, on the State's behalf, has been able to access finance markets at attractive and historically low rates in the past 12 to 18 months. That is great and it helps our interest bill, which has come down from approximately €7.5 billion to a little below €7 billion. Our belief is that in the coming years it could trend towards €6 billion. That is our hope provided the current interest rate environment remains benign. It is worth pointing out that in 2012 the forecast for our annual interest bill was €10 billion. Quantitative easing and the interest rate environment have significantly helped Ireland. We have been a major beneficiary, although we are still quite an indebted country.
I am keen to touch on that point. Although interest rates are low and we can access markets at attractive rates, we have a high level of absolute debt. We talk of how our debt to GDP ratio has come down to 94% from 120%. The economic growth figures push the ratio lower again. However, the absolute level of debt, at over €200 billion, is four times what it was in 2007. Our interest bill, which, as I have said, is close to €7 billion, was €2 billion in 2007. This debt is really the legacy of the crisis and we still carry it with us. When we talk about interest rates being attractive and suggest the State should borrow more money, it is worth reflecting that we already have substantial borrowings.
Regarding how the NTMA looks at the market and what it thinks about every day, the sovereign borrower is no different from any other borrower. The money we borrow has to be repaid or refinanced when it becomes due. We think about three categories. The first is revenue and what are our sources of revenue. What could happen to disturb or change those sources of revenue? Are we extrapolating unsustainable revenue in any case? In Ireland's case, as a small open economy, we are vulnerable to external factors. We have had a good deal of tailwind with low interest rates, low currency costs, good growth in overseas markets and low oil prices. However, these factors can change or reverse and we have to be cognisant of that.
The second category we think about is repayment. What are our repayment dates? How do they coincide with our revenue profile? Do we have enough flexibility? Do we have enough cash? Are we managing our short-term finances in a way that will allow us to do all of these things? I will outline our repayment schedule. For the coming 18 months, our repayment schedule is rather light, but in 2018, 2019 and 2020 a total of €45 billion in borrowing will become due over that three-year period, the majority of it in 2019 and 2020. This is what the people in the National Treasury Management Agency are already trying to think about and work towards. We have to think about these factors when we are in the borrowing markets.
The last factor is our absolute debt position. How much debt do we have? Who are we borrowing from? That is an important consideration. In Ireland's case, we borrow from international markets. Fully 90% of our traded debt is owned by international institutional investors. We do not have a big domestic savings market with regard to our debt. For example, a country like Japan has far higher debt levels than Ireland. It can sustain those levels because all of its borrowing can be financed by domestic savings. The markets look on those credits a little differently from those of Ireland given that we are dependent on foreign borrowers to that degree.
They are the considerations for us and we would be reluctant to add to that debt. The Department of Finance will talk about the other restrictions on the expenditure benchmark even if we could borrow.
We are considering what the Minister has asked us to focus on or prioritise in terms of housing and to find other parts of the NTMA we can free up to make some impact. In that regard the Ireland Strategic Investment Fund, ISIF, is the focus of the organisation. That is a fund of €7.9 billion and €2.4 billion of that has been invested throughout the country. This afternoon we will release the economic impact report from the strategic investment fund, which has a breakdown of the regional investments. Half of that is outside Dublin, half in the Dublin area, and across different sectors of the economy. We have approximately 50 investments in the pipeline with a value of close to €1 billion with some very interesting projects making a significant impact. Approximately 18,000 jobs have been created by the commitments made to those businesses to date.
In respect of residential housing, several investments have already been made in some platforms that have been discussed in parliamentary questions, etc. There is a company called Activate which has a €500 million fund. The strategic investment fund has invested €325 million with a co-investor who has put in the rest of the money. That €500 million fund is a non-bank platform that provides all-in finance to developers to build houses and could provide between 70% and 90% of the finance. The banks are now in the business of lending more like 50% or 60%. That fund has been created to fill that financing gap for developers. It has been up and running for only five or six months and my up-to-date information is that €50 million or €60 million has been drawn down to build approximately 800 houses. We have also invested in an equity vehicle called Ardstone that can buy land in the later stages of the planning cycle and partner with developers to build the houses. That has been active and has made its first transaction with approximately 400 houses on the pad.
We have invested in student accommodation with Dublin City University. That is an interesting sector because it is starting to move and releases houses that students are renting now, which frees up the market. It is an important sector. The ISIF has invested €54 million in a fund to build 2,000 units of student accommodation. That money released an additional €71 million from the European Investment Bank, EIB, into DCU’s overall campus development. It has had a significant impact on that university.
The final, smaller one is an urban regeneration fund. There has been a regeneration investment with Kilkenny County Council. We want to set up a fund in conjunction with a domestic pension fund to bring that out to other councils throughout the country for big towns and cities. That is the current ISIF activity.
Our debt management team also provides funds to the Housing Finance Agency, HFA. Since 2010, we have borrowed money on its behalf. Prior to that, it borrowed in its own right. We borrow that money on the market at government rates and we do not charge any margin to the HFA so it is accessing at the best rates possible. It lends the money on to approved housing bodies.
The National Development Finance Agency, NDFA, is involved in public private partnerships, PPPs. That is a long-term channel that we should keep open. It does take quite a long time to come to fruition. It is working on a PPP which is set to build 1,500 social houses.
The first bundle of 500 has been approved and is going through that process. It will be 2019 or 2020 before the public procurement process is completed and the houses can be ready for people to move into. It is a long-term channel that we want to keep open.
The Minister asked us to prioritise the sector and to look across the business in terms of whether we can come up with something else. We are considering a couple of platforms. One is an infrastructure fund to try to bridge the gap in places where infrastructure is clearly badly needed in order to release developments. The Dublin housing supply task force has said that close to 50,000 units could be built if infrastructure such as bridges, roads, water, sewerage, etc., is provided. We are considering establishing a fund that could lend money to local authorities directly or to private developers which would come to us. That would be different to what is available in the market because we could facilitate a ten or 20-year time horizon, or perhaps even longer. We would be prepared to take collateral against levies from local authorities - as houses are built - in a way that other financial institutions would not be prepared to do. The flexibility and tenure of the investment might allow us to do things a bit differently to the rest of the marketplace. We can add some value there and are working quite hard on that process. We are talking to local authorities and developers.
The second possibility is to consider a social housing vehicle whereby we could purchase social houses on behalf of approved housing bodies that are struggling to borrow money, that do not want to borrow or that cannot access funds. If they have identified houses they want to buy, we could set up a vehicle to buy houses on their behalf using funds from the Ireland Strategic Investment Fund or private capital. In terms of rental income, we would enter into a lease with approved housing bodies for 20 years. That would be an income producing vehicle and asset, and would, of course, crucially be off-balance sheet.
I apologise for speaking for so long. My final message is that we are trying to consider off-balance sheet private capital vehicles. The commercial property sector has come back to market a lot more quickly than the residential sector. A lot of institutional and private capital has come into the sector. In five or ten years' time, we will have a residential housing market that will have a lot more long-term institutional permanent vehicles to fund it and take risks. We do not want the banks to take risks because ultimately the taxpayer, as we know, bears the brunt of that. We want shareholders who are dedicated to the business to take the risk and to be able to go through the cycles with a bit more ease.