The Government is set to next year start paying back the €40 billion-plus EU part of its international bailout, four years earlier than had been expected when it was granted an extension on repayments at the height of the euro zone debt crisis.
It comes at a time, however, when borrowing costs are soaring in global debt markets, and as the Government is pledging to address the rising cost of living in Budget 2023.
A little-noticed tweak in recent National Treasury Management Agency (NTMA) investor presentations signals it plans to repay €2 billon of so-called European Financial Stabilisation Mechanism (EFSM) loans next year.
This is line with the original due date when the bailout was agreed in 2010. However, an agreement by EU finance ministers in June 2013 to extend the average maturity of the EU loans prompted the government of the day to say it would be unlikely to start repaying EU borrowings until 2027.
The NTMA had previously pushed out repayments of billions of euro of EFSM loans that were due over the past seven years, taking advantage the 2013 agreement to extend the average maturity of Ireland’s EU borrowings by seven years to 19.5 years.
While the NTMA had long factored in EU loan repayments starting in 2027, it started late last year to pencil in a start to payback, according to bond investor presentations. A spokesman for the NTMA declined to comment.
It is understood that the change was made following a decision to extend a €3 billion principal repayment, due last year, out to 2036. This took advantage of ultra-low long-term market borrowing costs at the time, but it also used up most of the extension room left on all EFSM facilities.
The Republic still owes more than €40 billion to the EU, having repaid all its International Monetary Fund (IMF) facilities and bilateral loans from the UK, Sweden and Denmark under its €67.5 billion international aid programme. Most of the loans were repaid well ahead of schedule.
Some €22.5 billion of the EU borrowings came from the EFSM. The remainder is from the European Financial Stability Facility (EFSF), a euro zone pot, which the Government is not due to start paying down until 2029.
It is understood that a final decision on repaying the ESFM facility maturing next year will not be made until closer to the time. This will be weighed against the NTMA’s cash balances, the scheduled redemption of €7 billion of bonds next March, and prevailing market conditions.
A spike in borrowing costs internationally has resulted in the market interest rate, or yield, on the Irish government’s benchmark 10-year bonds reaching a 7-1/2 year high of over 1.92 per cent on Wednesday, compared with 0.21 per cent at the end of last year.
The Department of Finance forecast in April that a general government surplus of €1.18 billion will be delivered next year, following a pandemic-driven €28.5 billion combined deficit over three years. However, the Government is facing growing pressure to take the sting out of soaring energy, food and other costs in its budget for next year, with Irish inflation estimated to have been running at 8.2 per cent as of last month.
