State’s debt ratio falling at fastest rate in the euro zone

Ireland is decreasing its government debt at the fastest rate in the euro zone, according to new data from Bloomberg.

The country is expected to slash its sovereign debt-to-GDP ratio by an estimated 18 per cent, from 2014 to the end of 2016, to almost 99 per cent.

However, on a per capita basis, Ireland's debt levels remain extremely high, with Irish people still carrying the second highest debt burden in the world, second only to Japan.

It’s not so long ago that Ireland was deeply mired in a bailout, but it has since become something of a poster boy for austerity.

The State’s government debt-to-GDP is expected to drop to 99.1 per cent this year, putting the total at €213 billion.

While this remains far off the ratio of just 26 per cent which it held in 2005, it is a vast improvement on 2013 when the debt surpassed 125 per cent of gross domestic product.

It also compares very favourably with other peripheral European countries, the former so-called Piigs.

Greece is forecast to increase its ratio to 178.3 per cent this year, up from 174 per cent in 2014, while Italy's ratio will rise by 2.3 per cent to 136.2 per cent.

Stabilisation

Spain

is set to continue to grow its debt, with a forecast increase of 3.6 per cent to 102.7 per cent on the cards.

A recent report from Moody’s noted that stabilisation and eventual reduction of the Spanish government’s debt ratio, “which has increased substantially from its pre-crisis levels” is a key challenge for the country.

Its debt-to-GDP ratio has soared from just 36 per cent in 2007, to a forecasted 102 per cent by the end of 2016, and, according to Moody’s, may rise even further.

“The trend of missed nominal fiscal deficit targets and the high structural deficit imply a greater upside risk to the debt trajectory than the numbers would otherwise suggest”.

Meanwhile, in Portugal, high government debt remains a key challenge, and its debt-to-GDP ratio is set to rise by 3.1 per cent to 129.2 per cent, according to Bloomberg forecasts, as the country's left-leaning government sets out to reverse its predecessor's austerity policies with the aim of growing its way out of trouble.

However Dermot O’Leary, chief economist with Goodbody Stockbrokers, strikes a note of caution when it comes to the figures.

“The big issue in 2015 was the dramatic increase in nominal GDP,” he says, noting that there is still some doubt behind those numbers, due to the impact of a strengthening euro.

Nonetheless, a plummeting ratio helps “from an aesthetic perspective,” he says, adding that Ireland’s underlying growth is still strong enough to shift the ratio.

“Given the real growth that Ireland has been experiencing, even if you allow for all the caveats, it’s well in excess of anything else that’s been seen in Europe”.

However, while Ireland may be the star pupil when it comes to debt reduction, when the figures are considered on a per capita basis, Ireland’s debt levels look dangerously high.

Indeed, Irish people still carry the second largest debt burden per capita in the world, at $48,730 (€43,571) per head.

This puts Ireland behind only Japan ($77,660/€69,438) and ahead of the US ($48,120); the UK ($46,580) and even indebted Greece ($31,850).

Outstanding debt So while Greece’s total outstanding government debt at some $343.2 billion (the end of 2016 forecast) may dwarf Ireland’s $238 billion, on a per capita basis, Ireland’s debt is far greater.

And it’s not the only challenge Ireland faces in terms of its debt.

The burden of servicing the debt is another factor, as Ireland pays considerably more than the euro zone average to do so.

In 2015 for example, Ireland’s costs stood at 3.3 per cent of GDP, ahead of a euro area average of just 2.2 per cent.