NTMA broadens borrowing plans as Donohoe eyes 7.5% budget deficit

The National Treasury Management Agency moved on Tuesday to hike its full-year borrowing plans as the Government spelt out the expected impact of Covid-19 on the economy and its finances.

The NTMA now plans to raise between €20 billion and €24 billion in the long-term bond markets in 2020, up from an original plan, announced in December, to sell €10 billion to €14 billion of securities. It also expects to increase its amount of short-term borrowings by €5 billion to €15 billion this year.

"Ireland is well placed to undertake the additional borrowing announced today," said NTMA director of funding and debt management Frank O'Connor, noting that the agency received strong demand for a €6 billion bond sale carried out earlier this month.

The NTMA has already issued over €11 billion of bonds this year.

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“We plan to use a combination of both long-term and short-term funding instruments which, alongside active management of our cash balances, will give us flexibility to match our borrowing requirements with investor demand.”

Deficit

Minister for Finance Paschal Donohoe said on Tuesday that the coronavirus crisis has resulted in a "severe recession" which is likely to see the economy shrink by 10.5 per cent this year with unemployment jumping to a record 22 per cent. The Government is also expected to run a budget deficit of 7.5 per cent of gross domestic product (GDP), or €23 billion, this year.

Still, Mr O'Connor said: "Ireland also benefits from strong credit ratings and the average maturity of its debt is one of the longest in Europe. The NTMA has, over recent years, smoothed out the maturity profile of the debt in order to build resilience in the portfolio to address adverse events."

Low interest rates in bond markets have been underpinned by the European Central Bank’s move last month to introduce €750 billion pandemic emergency programme of buying member states’ bonds in secondary markets. Governments across Europe face having to resort to the debt markets in the coming months to borrow hundreds of billions of euro to fight Covid-19’s assault on their health systems and economies.