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Government Expenditure

Dáil Éireann Debate, Thursday - 22 November 2018

Thursday, 22 November 2018

Ceisteanna (10)

Thomas P. Broughan

Ceist:

10. Deputy Thomas P. Broughan asked the Minister for Finance if he will report on the trends in general Government interest expenditure since 2017; the projections for the next five years; the way in which this expenditure has been impacted by the NTMA's management of the national debt in 2018; and if he will make a statement on the matter. [43866/18]

Amharc ar fhreagra

Freagraí ó Béal (4 píosaí cainte)

The Minister may remember I raised concerns about the refinancing of some of our benchmark bonds in 2018 and 2019 with him, the Taoiseach, Deputy Varadkar, and the previous Taoiseach, Deputy Enda Kenny. Since 2008, our national debt and interest payments are approximately the same size as the budget that the Minister launched a couple of weeks ago. The overall size of national debt is projected to be more than 100% of gross national income. What are the Minister's projections for the next four or five years, particularly in regard to refinancing?

The recently published annual report on public debt in Ireland outlines that the interest burden of public debt is perhaps best assessed by examining the interest-to-revenue ratio, which demonstrates the percentage of total Government revenue dedicated to interest expenditure. The ratio has been on a downward trend since 2013 but remains high by EU standards. As of 2017, debt interest payments amounted to almost 8% of general Government revenue, compared with 3% prior to the financial crisis.

As the Deputy may be aware, projections of interest expenditure for the next five years can be found in the economic and fiscal outlook published in budget 2019. As a percentage of total general Government revenue, interest expenditure is projected to amount to 5.8% in 2019, 5.3% in 2020, 4.9% in 2021, 5% in 2022 and 5.1% in 2023, displaying a broadly downward trajectory. At just under €5.3 billion, general Government interest expenditure this year is expected to be close to 9% lower than in 2017, and more than 30% below it 2013 peak, since which it has been on a downward trend.

There are a number of reasons for the drop, such as the early repayment of the €22.5 billion International Monetary Fund loan facility and bilateral bond switching, in which shorter-term debt is redeemed in return for longer-term debt. This year alone, €1.4 billion of 2019 and 2020 maturities have been switched into longer-dated bonds. The European Central Bank’s quantitative easing programme has been a significant factor. The National Treasury Management Agency, NTMA, has taken advantage of these favourable market conditions to issue a large volume of long-term debt at low rates. With funding concluded for this year, the NTMA issued €17 billion in general Government bonds, at a weighted yield of 1.1% and an average maturity of 12 years.

When I look at the NTMA figures, I note the bond component is steadily growing. Does that include the bonds to which the Minister refers, such that that aspect of national debt is increasing but in a safe manner? The concern raised by a number of academics and others over the years was that general interest rates would change and we could be left in a difficult situation. The Minister will agree that the €42,000 of debt per man, woman and child, which he quoted in the budget, remains a dire burden for our country.

How will the rainy day fund operate in the context of gross and net debt? Will that be deducted and taken into account when quantifying the net debt, or does it stand alone?

I will answer the last question first. It will have an effect on our net debt because it is an asset that we have and it is funding that is held by the State. Financial markets look at the solvency of the State and that fact will reduce our net indebtedness position.

Our national debt will be bond-financed more and more and, at a point in the future, will be exclusively bond-financed. I will check but I imagine that, following the early repayment of the IMF programme, we are already almost exclusively bond-financed. The progress that has been made by the NTMA in issuing longer-term debt will insulate us, to a degree, from changes that happen in the future. As the Deputy said, it is a massive constraint for the country to have a national debt of €202 billion and, over time, we have to get the figure down by running surpluses and being careful about one-off gains.

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