Financial Resolutions, 1978: Financial Statement, Budget, 1978. - Exchequer financing in 1977
The 1977 borrowing requirement of £545 million was about 10.2 per cent of GNP, a reduction on the 1976 figure of 11.3 per cent. While these percentages are high by EEC standards they represent a considerable improvement on the 1975 position when the borrowing requirement was 16.3 per cent of GNP.
Net receipts from sales of Government securities on the domestic market, at £408 million, financed three-quarters of the total borrowing requirement. The most satisfactory feature of this was the record level of sales to the non-bank public, which is a clear indication of confidence in our economy —an expression of confidence which was reinforced by the fact that a large part of the investment came from abroad. It may to some extent also reflect a certain lack of suitable investment opportunities in the private sector. Sales of Government securities to our domestic banks also increased substantially.
The market in Irish gilts has grown dramatically in recent years and leads us to look with some confidence to this source to finance much of our development over the next few years. However, the particularly buoyant sales during the past year may not be repeated because of increasing investment opportunities in the private sector.
There were significant reductions in Irish interest rates during 1977, thereby encouraging investment in the main sectors of the economy. International rates showed some signs of firming towards the latter part of the year and the indications are that movements will be moderate in the period ahead. Taken in conjunction with the reduction in inflation, this should provide a more favourable environment for investment than has been experienced in the recent past.
Small savings through the Post Office and Trustee Savings Banks in 1977, at £102 million, also showed a very big increase on the previous year's figure of £53 million. Together with sales of domestic securities, they financed almost the entire borrowing requirement.
The only foreign public loan raised by the Irish Government in 1977 was a successful issue of Yen Bonds on the Tokyo capital market. This issue was proceeded with as much for economic and trade reasons as for the funds it provided. The balance of direct external borrowing consisted mainly of loans from the European Investment Bank for specific capital projects. The $300 million credit arranged in 1976 was not called on because of the success in raising funds domestically. The credit has been renegotiated on much better terms having regard to the more favourable conditions now available on the international syndicated credit market and it will be available towards the financing needs of 1978.
Monetary policy for 1977 was framed with the aims of accommodating economic recovery and of contributing to a further reduction in the rate of inflation, thus establishing a secure base for employment expansion. Though final figures are not yet to hand, the indications are that bank credit to the private sector during 1977 was broadly in line with projections. This growth was assisted by considerable inflows of capital through the banking system, which in part related to industrial investment.
Another favourable factor was the record savings which accrued to building societies during the year. This enabled £120 million to be provided for the housing programme.