The Republic is likely to ask the EU to roll over part of its bailout loans due in the coming years, even as it enjoys ultra-low market borrowing costs in the near term, according to Standard & Poor’s.
Ireland’s €67.5 billion bailout in 2010 was largely split between the International Monetary Fund and two EU funds, the European Financial Stability Facility (EFSF) and European Financial Stabilisation Mechanism (EFSM).
EU finance ministers and officials agreed in 2013 to extend the average maturity of Irish and Portuguese loans from the two EU facilities by up to seven years, to 19.5 years, to smooth the debt repayments of both countries. While the EFSF extended the Irish loans immediately, the EFSM can only roll over loans, which amounted to €22.5 billion at the start of the bailout, as they mature.
The first €5 billion of EFSM loans that fell due last year were extended, according to the National Treasury Management Agency's annual report. Frank Gill, a director of European sovereign ratings at Standard & Poor's, said he expects Ireland to continue to request agreed EFSM extensions as loans fall due, even though borrowing costs have plunged in recent years.
The yield on Ireland’s benchmark 10-year bonds reached an all-time low of 0.31 per cent last Monday, down from a 14.2 peak in July 2011.
“I don’t think Irish financing costs will fall below [the rates at which the EU funds can borrow],” Mr Gill said.
The rate the EFSM charges is based on what it pays investors for its own loans. The facility’s 10-year bonds currently yield 0.07 per cent.
The NTMA has said that, while it doesn’t envisage refinancing EFSM loans in the market before 2027, the revised maturity dates of individual loans will only be determined as they approach their original maturity dates. Two such loans, totalling €3.9 billion, fall due in 2018.
The Government refinanced €18 billion of its higher-cost IMF loans in the market between late 2014 and March 2015 to save an estimated €1.5 billion on interest payments. The IMF continues to have €4.5 billion of loans to the State, allowing it to remain a part of Ireland’s post-bailout surveillance team.
