What a difference a year can make. Our economic recovery remains fragile and could yet be knocked off track by a major external shock but the outlook around our national finances has improved immeasurably over the past 12 months.
This was the message that the National Treasury Management Agency (NTMA) sought to drive home yesterday at the publication of its annual report and its mid-year update.
Minister for Finance Michael Noonan said we have moved from a position that was "quite difficult" to one that was "quite sustainable".
He cited how the NTMA has raised €10.5 billion from the markets this year in various issuances, including a €5 billion 10-year bond in March, the first of its type since January 2010.
The yield on our bonds has come down from a peak of 14 per cent in mid-2011 to a level at around 3.8 per cent.
“We wouldn’t have got money at those interest rates even when we had a triple-A rating,” the Minister noted.
The replacement of the Irish Bank Resolution Corporation promissory notes with long-term government bonds will reduce the State's funding requirement by €2 billion a year over the next decade.
The deal on extending the maturities on the European portion of our troika bailout loans is worth a similar amount.
So the State's funding requirement has been reduced by €40 billion over the next decade, easing a lot of nerves in the markets about our ability to repay our debts.
Carried away
Not that we should be getting too carried away.
Ireland’s national debt still rose by €18.5 billion in 2012 and finished the year at a record €137.6 billion. Our debt servicing costs rose to €6.5 billion last year from €5.4 billion in 2011. That’s a hefty burden for a State that generates about €42 billion in total income annually.
The vast bulk of the increase in our national debt was represented by the €14.9 billion exchequer deficit in 2012. That has reduced this year due to the package of measures in last December’s budget but we’re still borrowing about €1 billion a month to fund the State.
The projected general government deficit – a gross measure that doesn’t take account of the State’s cash balances and other financial assets – relative to our GDP will peak this year at 123.3 per cent.
The NTMA has accumulated a pot of funds that will tide us over until the end of 2014. That’s one full year after the bailout programme ends.
When asked if this might be a good time to tap the markets for more funds given the current low interest rate on our bonds, the NTMA's chief executive John Corrigan said: "Our thinking at the moment is to leave it until the fourth quarter [of 2013] and at that stage the market will have sight, hopefully, of the exit arrangement [from the troika bailout] and also the budget. I would anticipate they would both be positive factors in relation to the price [we will get on our bonds]."
Figures from the NTMA yesterday show that there is a bond maturity of €7.6 billion next January – which we know is funded. In 2015, bonds worth €3.6 billion mature in February, while bonds of €10.2 billion will mature in April 2016.
The Minister said he was “confident” that the NTMA would as “successful going forward as they have been” to date in refinancing the country’s borrowings.
Ireland is due to exit its troika bailout programme on December 15th. Mr Noonan made it clear that some form of “back-stop” arrangement with the EU and IMF would be desirable as it would give “added confidence” to the markets that we can once again stand on our own two feet.
Mr Corrigan said it would be “sensible” to have such a safety net in place as a counter to any external shocks that might affect our recovery.
Neither the Minister nor the IMF and European Commission would be drawn yesterday on the specifics around what form such a precautionary line of credit would take.
'Tossing ideas'
The Minister said he has been "tossing ideas" around on the back-stop arrangement with the IMF, commission and the European Central Bank.
Such arrangements do not typically last for more than 12 months, he said.
What type of conditionality might apply? None in a fiscal sense, the Minister said. This was due to the requirements that are laid down in the fine print of the fiscal union in the euro zone and the new arrangements that now apply to co-ordinating the timing of national budgets.
“So the only condition that I have discussed is that...we would stress test our banks and we would like to do that in close proximity to the general run of stress testing [of banks] across Europe,” Mr Noonan said, adding that the stress tests are likely to happen in the second quarter of 2014.
“That would be the condition,” he added. “There would be no problem with that, we volunteered that condition.”
In briefings yesterday the IMF and European Commission were coy on the issue of conditionality. Craig Beaumont, who heads the IMF's mission in Ireland, said the Government would have to formally request such an arrangement before any agreement on the terms could be considered.
