The Government published its Draft Stability Programme Update on 21 April. This set out an updated economic and fiscal scenario, for this year and next, incorporating the impact of the Covid-19 pandemic. The necessary fiscal cost of providing short-term support to the private sector will be significant. A general government deficit of €23 billion was projected for this year.
The cost of these measures was estimated at €6.8 billion, with the most important being the Pandemic Unemployment Payment and the Temporary Wage Subsidy Scheme. These are in place to support those who have lost their employment due to the restrictions and to help maintain the worker-employer relationship.
Following the introduction of further measures aimed at supporting enterprises my Department published a document in order to update the suite of measures detailed in the SPU. This document is available here: www.gov.ie/en/publication/4d2b1f-covid-19-policy-response-overview-of-economic-support-measures/.
The Pandemic Stabilisation and Recovery Fund, within the Ireland Strategic Investment Fund (ISIF), will utilise up to €2 billion of ISIF’s readily available capital to invest in medium and large enterprises. This will not give rise to any additional Exchequer costs nor require any further borrowings to finance it.
The starting position is favourable: a general government surplus was delivered last year; the Rainy Day Fund (RDF) was established; at end-April the NTMA had c.€20 billion of cash - pre-funding this year’s redemptions; and there are no bonds maturing next year.
In light of the updated fiscal position, including the Exchequer Borrowing Requirement of €15.6 billion, the National Treasury Management Agency (NTMA) has announced a revised bond funding range of €20 billion to €24 billion for the year.
The NTMA has issued €12.5 billion in bonds so far this year. This includes two new bonds maturing in 2027 and 2035. There are further bond auctions scheduled this quarter. The NTMA also plans to increase Treasury Bill and Commercial Paper Issuance. Overall short term issuance is expected to increase by a further €5 billion by year end.
The first instalment of the National Asset Management Agency (NAMA) surplus of €2 billion was due to be made this year and had already been accounted for in the Budget 2020 fiscal projections.
Given the scale of the impact on the economy of Covid-19 it is envisaged that the RDF drawdown, when it happens, will be for the current value of the Fund i.e. €1.5 billion less expenses incurred by the NTMA in managing the Fund. Drawdown of the RDF means that the Exchequer Borrowing Requirement for 2020 is c. €1.5 billion less than would otherwise be the case. The rationale for having such a Fund – for use in exceptional circumstances such as these – has been strengthened by this crisis.
Due to recent successful debt issuances by the NTMA, there is no immediate need for drawdown and no specific date as to when drawdown will happen. Last month the NTMA successfully borrowed €6 billion in the bond market for 7 years at less than ¼ of 1 percent.
The interest rate environment remains accommodative owing to European Central Bank policy action and the introduction of its €750 billion Pandemic Emergency Purchase Programme (PEPP).
In relation to the Deputy’s question on the actions of the European Central Bank (ECB), I have previously welcomed its monetary policy response to the pandemic, and particularly the PEPP and greater flexibility in its refinancing operations. I expect banks to use the positive effects of these measures to support the economy and I know that the Central Bank of Ireland shares this view. In terms of changes to ECB operations, I should point out that Article 130 of the Treaty for the European Union sets out that Government must respect the independence of the European Central Bank and not seek to influence its decisions.
Finally, I agreed with my fellow Euro–area finance Ministers the features and standardised terms of the European Stability mechanism (ESM) Pandemic Crisis Support instrument. This ESM instrument has been tailored to meet the challenges of this crisis and will provide a safety net of c.€240 billion for Euro-area Member States.
I consider this instrument to be an important and credible safety net for the euro area, both in terms of its magnitude and availability to all euro area Member States, however, I do not envisage that Ireland will avail of this instrument for the reasons I have already set out.