Government debt rises by almost €2bn

NTMA chief executive Mr Michael Somers said yesterday that, while there had been much reportage of the equity-related losses incurred by the National Pensions Reserve Fund following the recent downturn in global markets, recent swings had been "unprecedented". "The markets must go up again," he said.

Government debt rose by almost €2 billion in 2001 and the National Pension Reserves Fund shed almost 4 per cent in the six months to June 30th last, according to the National Treasury Management Agency (NTMA).

In its annual report, published yesterday, the NTMA reveals that general Government debt rose by €1.8 billion in 2001 to €42 billion due to an increase in local authority borrowing and "some technical factors". The debt was still the second lowest in the EU and was almost two-thirds lower than the EU average, the agency said.

There was an increase of €720 million in debt in the local government sector, most of which was provided by the Housing Finance Agency. A total of €628 million in debt was incurred via a temporary loan facility to the Housing Finance Agency for on-lending to the local government sector. And €775 million belonging to the Social Insurance Fund was switched from Exchequer notes to bank deposits and other assets in order to earn a higher rate of interest and the borrowings to replace this were added to general Government debt.

The pension reserve fund monies invested in world equity markets had lost 3.95 per cent in the six months to June. This compares with an average 9.69 per cent loss for other Irish pension funds invested in the markets.

The losses incurred were in the region of €600 million, cancelling out the interest earned.

The Minister for Finance, Mr McCreevy, said, despite the losses, the fund managers chosen around the world to invest the monies still had his confidence. He said he saw no merit in a proposal to freeze investment in global markets until economic conditions stabilised, saying if such a policy was adopted "there would always be a reason" not to invest.

He said short-term losses were not a cause for alarm because "with any pension fund, you have to take a long-term view". No monies will be paid out of the fund before 2025. Mr Somers added that, during the period to 2025, "this policy will have a whole load of profits to explain".

The State's total debt expenditure in 2001 was €299 million below budget at €2.68 billion. There was a further decline in interest burden of the debt, from 7.6 per cent of tax revenue to 6.7 per cent, a quarter of what it was 10 years ago. The State's Standard & Poor's credit rating was upgraded to AAA during 2001.

The NTMA incorporates the National Claims Agency, which manages claims for the State and a variety of State authorities. It has around 1,000 claims under management, with 29 per cent originating within the prison service, followed by the Garda on 21 per cent, the Defence Forces (17 per cent) and the Office of Public Works (14 per cent).