TAXPAYERS WILL pay an average of 4.7 per cent interest on the €20 billion borrowed by the State from international bond markets this year, according to the Minister for Finance, Brian Lenihan.

Mr Lenihan told the Oireachtas Joint Committee on Finance and the Public Service yesterday that the overall rate of interest on Irish Government bonds remains the same as last year, despite the high yields at which this week’s €1.5 billion worth of bonds were issued.

Uncertainty over the final bill for saving Anglo Irish Bank and fears the State will not be able to meet the cost mean investors who lend money to governments are charging the Republic high interest rates, because they believe there is a higher risk than normal that the State will not pay back its debts.

At the close of business yesterday, the rate on the Irish 10-year bond was 6.285 per cent, down from a high of 6.319 per cent. Irish bonds were 3.74 percentage points more expensive than their German counterparts, which are used as a benchmark for debt issued by other euro-zone countries.

In a statement to the committee, Mr Lenihan said “the weighted average cost of funds raised in the bond market in 2010 is 4.7 per cent, which is the same as the average funding cost achieved in 2009 overall”.

The National Treasury Management Agency (NTMA) has issued €20 billion worth of bonds this year, but most of them were issued at rates much lower than the amount investors sought for this week’s tranche.

The Minister told the committee he expects the Central Bank to have a final estimate of the cost of rescuing Anglo Irish Bank by early October.

He said that while the costs will be huge, they will be “manageable”. The Government has committed a total of €22.9 billion to recapitalise the bank – €18.9 billion of this will be by way of promissory notes, or written commitments to give the bank capital as it is required.

Mr Lenihan said the promissory notes would cause a “spike” in Government debt for 2010 that will disappear from its balance sheet next year.

The Government will ask the Dáil next week to vote on a proposal to extend parts of the two-year-old bank guarantee to the end of December.

The guarantee includes €2.5 billion of subordinated debt owed by Anglo Irish Bank.

Mr Lenihan said the Government would give a “clear indication” of how it intends to deal with that debt next week.