€3.6bn accounting error will 'have no impact on budget'

A €3.6 BILLION accounting error in the public finances is not expected to have any impact on December’s budget, although it has reduced the State’s amount of outstanding debt by 2.3 per cent of gross domestic product (GDP).

Following the discovery of the error, Ireland’s gross outstanding debt for 2010 has now been revised to € 144.4 billion (92.6 per cent of GDP) rather than the published €148 billion (94.9 per cent of GDP).

According to the Department of Finance, the error will not have any impact on the Government’s budgetary strategy, which is expected to feature a € 3.6 billion adjustment. This is because of the way national debt is calculated.

“Overall, the State is no better or worse off as a result of the correction,” the Central Statistics Office said yesterday.

However, economists say any reduction in Ireland’s outstanding debt will have a positive impact in terms of international perception.

Dermot O’Leary, an economist with Goodbody Stockbrokers, said the error would have “no impact” on the budget, because it concerned gross debt levels rather than spending and income levels, but that it “probably helps on the sentiment side”.

Austin Hughes, economist with KBC Bank, agreed. “It makes a severe problem a little less severe,” he said yesterday.

The error arose because of a change in the way the Housing Finance Agency (HFA), which provides loan finance to local authorities and voluntary housing bodies, is funded.

Up until late 2010, the National Treasury Management Agency (NTMA) acted as an agent for the HFA when it borrowed money. However, it is understood that when international markets closed to the HFA in mid-2010, the HFA borrowed €3.6 billion directly from the NTMA.

When compiling the end-2010 figures, this 3.6 billion was mistakenly treated as external borrowings and was wrongly added to the gross outstanding debt figure.

At the same time, the NTMA’s “liquid assets”, which is the amount of borrowings left unused at the end of year, were also overstated by €3.6 billion, as the loan from the NTMA to the HFA was incorrectly recorded as an open market bank deposit.

While the error has resulted in a restatement of gross outstanding debt, it has had no impact on Ireland’s national debt, which is calculated by the NTMA as the amount it borrows, less the amount left unused at the end of the year.

At the end of 2010, this stood at €131.8 billion and this net debt position remains unchanged.

However, Mr Hughes said it was “worrisome” that mistakes such as this were being made.

Last week Germany restated its outstanding debt due to a €55 billion accounting error in state-owned Hypo Real Estate Bank.