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 is currently 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.
On 2 May, the Government adopted an additional suite of measures – targeted towards the business sector. Some of these measures will require legislation to be enacted, which is a matter for the next Government. The total amount of this additional business support is €6.5 billion.
From a statistical perspective not all of these measures are included in estimates of the general government balance – loan guarantees, for example, are contingent liabilities rather than actual liabilities.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.
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 over €11 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 year 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.
Finally, last week 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 make c.€250 billion available to Euro-area Member States.
Ireland has a strong track record of market access and is well placed to increase its borrowing activity arising from the economic disruption relating to the pandemic.
