Dáil Éireann Debate, Thursday - 21 November 2013
47. Deputy Lucinda Creighton asked the Minister for Finance if he will provide the total costs associated with maintaining the cash balances of the State in 2011, 2012 and to date in 2013 arising from the fact that the return on cash and related assets is lower than the cost of borrowing; and if he will make a statement on the matter. [49934/13]
View answerThe proceeds of all borrowings by the Exchequer, including borrowing under the EU/IMF programme, as well as tax revenues, non-tax revenues and other receipts, are lodged to the Exchequer account at the Central Bank of Ireland to fund on-going Government expenditure. There are constant flows into and out of the Exchequer account and all moneys within it are fungible. The Government must ensure through its management of expenditure, tax and non-tax receipts and borrowings that there are prudent and adequate balances available to the Exchequer at all times. This also helps to provide investors with the assurance they require that they will be repaid upon the maturity of debt. For small open economies such as Ireland, budgetary aggregates are generally more susceptible to the negative effects of external and internal shocks. In general terms the overall level of cash reserves maintained depends on the amount of liabilities falling due for payment in the short term and the State’s risk appetite in relation to such shocks over the longer term. Particular factors which arise in that context include the international economic situation, the State's debt maturity profile and the projected pattern of Exchequer receipts and expenditure.
The National Treasury Management Agency (NTMA) manages the national debt in order to ensure liquidity for the Exchequer. Decisions regarding the appropriate level of cash and related assets to be maintained take account of various factors in addition to the cost of maintaining such reserves. These factors include the potential risks of not maintaining an adequate and prudent cash balance, including the risk that the Exchequer would be unable to meet its obligations and that market funding rates for Ireland would therefore be higher than would otherwise be the case due to the perception that the State had a precarious liquidity position.
As Ireland returns to funding itself through the debt markets while still running a large though declining budget deficit, the need to hold appropriate cash balances as we emerge from the EU/IMF programme is paramount. The NTMA plans accordingly to have cash on hand as at the end of the programme in December 2013 to cover the Exchequer's full needs for the calendar year 2014 and the early part of 2015. The State earns a return on its cash balances and related assets which the NTMA manages in a prudent manner consistent with minimising risk and always having sufficient cash on hand to cover any volatility which might arise.
Due to the fungibility of the various cash streams flowing into the Exchequer, it is not possible to provide a precise measure of the total cost of maintaining the cash balances in 2011, 2012 and to date in 2013. However, the NTMA has estimated that the difference between the average rate of interest payable on long-term borrowing and the average rate receivable on cash and related assets was in the range 2.4 to 3.1 percentage points in 2011-2012 and 2.7 percentage points in 2013 to date. The inputs to the cost of long-term borrowing include EU/IMF programme funds and the bond issuance done by the NTMA during 2012 and 2013
The NTMA continues to keep the quantum, maturity and timing of market funding under review based on its assessment of what is required to regain full market access and the overall level of cash balances that it is prudent to maintain. It is the intention to run lower cash balances in the coming years and this has been reflected in the Budget 2014 projections.
