NTMA says Government debt could fall below €200bn by end of decade

The National Treasury Management Agency (NTMA) said on Wednesday that Irish general government debt could fall below €200 billion by the end of the decade for the first time since the height of the financial crisis, helped by forecast budget surpluses in the coming years.

The debt mountain declined by €11 billion last year to €225 billion, marking the first drop since 2019 and largest since 2014, the agency said as it unveiled its annual report for 2022. The last time the debt level was below €200 billion was in 2011, when the Republic was in the middle of an international bailout programme.

In terms of debt per capita, that means the State owes €43,915 for every man, woman and child in the country.

“Our pre-funding strategy means that we have over €25 billion in cash and liquid assets at the half-year point, which reduces the requirement for borrowing at higher rates in the coming years,” the NTMA said.

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The NTMA said on Monday that it will hold only one more bond auction in 2023, signalling that it will finish off at the lower end of its fundraising target range as the Government’s projected budget surplus has improved since late last year.

The agency has raised €6 billion in long-term debt so far this year, out of the range of between €7 billion and €11 billion that it announced last December. The NTMA plans to hold its last bond auction of 2023 on September 14th. It typically raises between €1 billion and €1.5 billion in such auctions.

The NTMA sold an average of about €16.5 billion of bonds a year between 2014 and 2021, including large issuances during the Covid-19 pandemic. The Government currently forecasts that its general surplus will rise from €8 billion last year to €10 billion this year and almost €12 billion in 2024, driven by windfall corporate tax receipts from multinational groups with operations in the State.

“The markets will know that the days of double-digit issuance above €10 billion are probably gone,” Frank O’Connor, chief executive of the NTMA, told reporters at a briefing.

Still, Minster for Finance Michael McGrath said that the Government knows that it is important for the NTMA to continue to raise some debt in the coming years, in order to maintain relationships and links to the capital markets, “even though we don’t actually need the cash”.

The NTMA’s strategy of pre-funding its financing needs has helped mitigate the effect of higher interest rates, with the 2022 interest bill unchanged versus 2021 at €3.3 billion arising from fixing borrowing costs at historically low rates for long terms, the agency said.

“We expect the average interest rate on Ireland’s debt will remain at circa 1.5 per cent this year, and that the interest bill for 2023 will be at a similar level to 2022 and 2021,” the NTMA said. “Indeed, we expect the interest bill to stay relatively stable over the next three to four years.”

The Minister defended the Government’s plan, outlined on Tuesday, to increase spending in Budget 2024 by €5.2 billion, which amounts to a 6.1 per cent increase in core expenditure, compared with its target of no more than a 5 per cent increase.

Mr McGrath said that exceeding 5 per cent “is warranted”, as it gives the Government “the ability to ensure that we provide an appropriate level of investment in public services and that we can protect people’s living standards” at a time of heightened inflation. He said that the additional money being spent is expected to add about 0.2 per cent to national inflation.

Headline Irish inflation was running at 6.6 per cent in May, down from 7.2 per cent a year earlier, according to the latest figures from the Central Statistics Office.

Separately, the Minister said he plans to add RTÉ to the list of commercial State sector companies subject to the formal oversight of the NTMA’s NewEra unit.

NewEra provides financial and commercial advice to Government ministers and departments in relation to 18 designated State-owned companies. The Minister said that the Government had already been considering adding RTÉ to the list of companies designated to the NTMA. He said RTÉ's payments scandal has “confirmed that we were making the right decision”.