A budget deficit of almost 8 per cent and unemployment of 15 per cent by the year’s end are among the stark warnings to be given to the Cabinet on Tuesday about the impact of Covid-19 on the public finances.

Ministers will be warned about the full extent of the impact of the pandemic on Ireland's economy this year when Minister for Finance Paschal Donohoe presents a key economic document to be submitted to the EU.

The Stability Programme Update contains the Department of Finance’s projections for the economy’s performance for the immediate future and must be submitted to the European Commission by the end of the month under EU budgetary rules.

Forecasting challenges

Revised economic projections will signal a likely budget deficit this year – the difference between the State’s revenues and expenditures – of close to 8 per cent of national income, a level not seen since the financial crisis of 2008-2011.

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The document, which is expected to be published after Cabinet approval, will underline the difficulty of making forecasts against the backdrop of the current uncertainty. But it is expected to say that even with a gradual restart of economic activity in the coming months, the unemployment rate could end the year at some 15 per cent.

Borrowing ability

Sources said the document would provide a sobering backdrop to talks on the formation of the next government, clearly highlighting the lack of room for manoeuvre in the years ahead. A key question for the next government will be how soon the budget deficit should be reduced and whether Ireland will continue to be able to borrow at current rock-bottom interest rates.

The upheaval facing the world economy was underlined by an unprecedented collapse in US oil prices, with the benchmark West Texas Intermediate falling into negative territory to minus $40 a barrel at one stage on Monday. The drop related to the expiry of oil contracts and the fact that the US has run out of oil storage space, but this has been driven by the collapse in demand which has left a vast oversupply on the market.