A vote this afternoon in the Swedish parliament is set to clear the way for the Government to proceed with the early repayment of up to €10 billion of its €22.5 billion International Monetary Fund debt by the end of the year.
The Government is likely to follow the first repayment, expected next month, with a bond issue in January with a view to repaying a further €9 billion-€10 billion of the IMF debt early next year.
Sweden’s permission for the IMF transaction is 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 European Union countries to allow Ireland pay off a large tranche of the IMF debt before corresponding European repayments.
Although all other requisite approvals have been received from member states, the Swedish vote was delayed due to an election.
The Swedish government has backed the arrangement and so too has the finance committee of the Riksdag, Sweden’s parliament .
In a pre-vote statement, the committee said the repayment of IMF loans would give Ireland a “desirable opportunity” to reduce its borrowing costs. “The finance committee is proposing that parliament approves the agreement,” it said.
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.
Ireland’s 10-year borrowing cost are now around 1.54 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.
