I propose to take Questions Nos. 138 and 145 together.
Private sector debt, in accordance with international standards, is defined as debt held by households and non-financial corporations (NFCs). According to statistics provided by the Central Statistics Office, in the case of Ireland these figures stood at €194,219 million for households and €347,002 million for NFCs at end 2010. Collectively these figures equate to a private sector debt to GDP ratio of 346%. This figure is similar to that provided by EUROSTAT (341%) and the McKinsey Global Institute publication from January 2012 (318%). The differences are explained by the difference in sources and accounting methods, as well as the date of compilation.
The Deputy is correct in pointing out that the McKinsey report also includes a figure of 259% of GDP for debt held in the financial sector, however, for the purpose of identifying the level of private sector debt it is not appropriate to include this figure.
Firstly, the significant presence of foreign banks in the Irish Financial Services Centre inflates the overall size of the balance sheet of the financial sector. Secondly, the purpose of any banking system is to provide credit to firms and households for consumption and investment purposes. As such, the liabilities of the banking industry fund their assets — the primary component of which is loans — and these should closely mirror the liabilities of the private and, to an extent, the public sector.
Similarly, it is also necessary to be aware of Ireland's position as a centre for international business when interpreting the figures for NFC debt. I would draw the Deputies' attention to a recent presentation to the Joint Committee on Finance, Public Expenditure and Reform by the Central Bank of Ireland and the Central Statistics on the 7th of March 2012: http://debates.oireachtas.ie/FIJ/2012/03/07/00003.asp and http://www.corkeconomics.com/wp-content/uploads/2012/03/Non-Financial_debt_Finance-Committee_1.pdf
In the presentation NFC debt is broken down according to funding sources. Notably, a large portion of the debt examined is accessed through capital markets and international treasuries. This indicates that a significant portion of NFC debt is composed of funding to large multinational corporations, while borrowing by indigenous Irish firms would be more commonly accessed through the domestic banking system.
It is important to note that there is currently no published series that would enable closer examination of this trend, and that the contents of the above presentation can be used purely for indicative purposes, and are not intended to be official statistics. I can inform the Deputies the Central Bank of Ireland and Central Statistics Office are currently in discussions with the Department of Finance to increase the level of surveillance in this regard, with a view to providing a more detailed breakdown of the influence of multinationals on the levels of Irish private sector debt. For these reasons I am not currently able to provide an accurate projection of private sector debt over the next five years.
I can inform the Deputies that Irish households are currently in a process of private deleveraging, with debt repayments outstripping the draw-down of new loans over the last two years as private household debt contracts to more sustainable levels. While a necessary precursor for more sustainable growth in the future, it is clear that deleveraging on the part of firms and households is weighing on business investment and consumer spending. As discussed in the 2012 Stability Programme Update, it is expected to remain a feature of the Irish economy for the immediate future. In recognition of this, since coming into office, the Government has brought forward a number of measures to support the domestic economy and job creation, including the Jobs Initiative, lending targets for banks and the Action Plan on Jobs. I am confident that these measures will help underpin a stabilisation in the medium term, followed by a gradual pick-up over the coming years.
