State well-placed to borrow in international markets, NTMA says

The Republic is “well-placed” to borrow more money from international markets as a result of coronavirus-related disruption if needs be, the State’s debt management agency has said.

Improvement in our debt profile over the past five years, when coupled with strong investor appetite for our debt, means we are in a good position "to address any borrowing challenges" that may arise, the National Treasury Management Agency (NTMA) said in a statement.

It is expected that increased borrowing will result from the measures outlined by the Government which aim to stabilise the economy and address the Covid-19 challenge.

But the NTMA said the borrowing will take place against a backdrop of a “strong improvement in Ireland’s debt position in recent years, which has been reflected in a solid trend of lower borrowing costs, strong demand for Irish sovereign debt among international investors over a protracted period and ratings upgrades by each of the major credit rating agencies”.

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Available cash

The State has about €26 billion in available cash this year, of which €19 billion needs to be paid back to investors including a €10.6 billion bond redemption in April. That leaves about €7 billion in cash which the NTMA has built up to ensure it can seek to raise debt at a time of its choosing.

While the debt agency had originally guided that it expects to raise between €10 billion and €14 billion in debt this year, it’s unclear whether that will change as a result of the coronavirus crisis. The NTMA raised €5 billion in January with an interest rate of 0.45 per cent to be repaid in 15 years followed by €1 billion in January with a negative interest rate of -0.156 per cent. That has to be repaid in 2029.

Alternative sources of funding for the State include about €4.5 billion in liquid investment in the Irish Strategic Investment Fund. There is a further €1.5 billion in the rainy day fund. And the National Asset Management Agency (Nama), which is winding up, is due to repay €2 billion to the exchequer later this year and another €2 billion next year.

Bond redemptions

And while the debt agency has to repay €19 billion this year, it is in the fortunate position of having no bond redemptions in 2021 and redemptions totalling €27 billion from 2021 to 2024. This is compared to the €70 billion it had to fund for redemptions between 2017 and 2020.

“Five years ago, the average interest rate on our national debt was close to 4 per cent; it is currently on course to fall below 2 per cent,” said Conor O’Kelly, chief executive of the NTMA.

“Five years ago our annual interest bill was over €7.5 billion and it is now close to €4 billion.

“We have the benefit of strong international investor appetite for our debt and a supportive interest rate environment that is underpinned by favourable interventions of unprecedented scale by the ECB and other authorities,” Mr O’Kelly said.