Is Ireland a high-debt country? That's one of the questions the Economic and Social Research Institute (ESRI) seeks to answer in its latest quarterly report. You might be tempted to conclude that, with a national debt fast approaching €240 billion, the answer is an overwhelming yes. But it depends on the size of the economy that's carrying it.

The ESRI notes that Ireland’s debt-to-GDP (gross domestic product) ratio, which is typically used in assessments of sovereign debt, stood at a relatively low 59 per cent in 2020, albeit acknowledging “the well-known difficulties with GDP in an Irish context”. When using debt-to-GNI* (modified gross national income, the Central Statistics Office’s bespoke measure), our ratio rises to 105 per cent.

However, the think tank says there are issues with both approaches: one provides perhaps a false benchmark because of the inherent volatility with GDP; the other inhibits comparisons with other countries.

Fiscal sustainability

Instead, it proposes using an alternative measure of fiscal sustainability – the ratio of gross government debt to taxation revenues.

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In 2019, Ireland's debt-to-tax receipts ratio was 2.6. In terms of a euro zone comparison, this wasn't as high as Greece, Italy, Portugal or Spain but was – as the ESRI notes – at the higher end of the distribution, suggesting Ireland is one of the more indebted countries in Europe.

“The key point is – [and] I think this is often lost in some of the commentary around these kinds of indicators – you have to look at the trend,” the institute’s Kieran McQuinn said. “A snapshot at a point in time won’t necessarily tell you a whole lot.

“What’s clear in an Irish context [is that] there’s been a significant improvement in that ratio over the last seven or eight years and that’s due to the very strong improvement in economic conditions,” he said.

The State’s debt-to-tax receipts ratio fell from 3.9 in 2011 to 2.6 in 2019, in other words a 30 per cent reduction. “That suggests the public finances are in a better position” and the debt more sustainable, McQuinn said.