Swedish MPs voted this afternoon to allow Ireland to repay a large portion of its IMF loans early, clearing the way for the Government to retire up to €10 billion of the €22.5 billion debt.
Although final approval is awaited from the Swedish cabinet, this is simply a procedural step. Sweden’s permission for the deal, delayed due to an election, completes European approval for the transaction.
“The Swedish parliament has agreed to the waiver for Ireland’s proposed repayment of a portion of its IMF loan. I understand that the necessary written confirmations by the Swedish authorities will be provided tomorrow,” said a spokesman for the Department of Finance.
It is only after receiving such confirmation that Minister for Finance Michael Noonan will set out the next steps to be taken in the repayment process. However, it is believed the deal could be executed by the end of next week.
The Government is likely to follow the first repayment with a bond issue in January with a view to repaying a further €9 billion-€10 billion of the IMF debt early next year. The remainder of the IMF debt would not be paid off early as the relevant rate of interest – just above 1 per cent – is lower the than current market rate.
Sweden’s permission for the IMF transaction was required because the country, which does not use the single currency, gave a total of €600 million in bilateral loans to Ireland under the €67.5 billion bailout agreement in 2010. The four Swedish loans fall to be repaid between December 2019 and May 2021.
Loans from all sources were to be repaid in equal portions under the original deal, so parliamentary approval was needed in many EU countries to allow Ireland pay off a large tranche of the IMF debt before corresponding European repayments.
The Coalition’s objective is to retire comparatively expensive IMF debt which carries an average annual effective interest rate of 3.47 per cent and replace it cheaper debt sourced on the open market.
According to research by the EU/IMF troika, the Government may eventually realise savings of some €2.1 billion on the deal. This is €600 million than the sum Mr Noonan mooted at the outset of talks on the repayment.
Ireland’s 10-year borrowing cost are now around 1.55 per cent. A fortnight ago the National Treasury Management Agency raised €3.75 billion in 15- year debt at an interest rate 2.487 per cent, most of which is likely to be used for the IMF transaction. The remainder required for a repayment of up to €10 billion will come from cash the State holds.
The manoeuvre will reduce costs the State incurs for keeping money in reserve, as it earns less interest for the Government than the interest it pays on the national debt. The deployment of cash held for this purpose will also reduce Ireland’s debt-to-GDP ratio.
