Growth in economy takes sting out of rising debt

The Republic's ratio of national debt to gross national product fell in 2007, despite an increase of €1.6 billion in the national debt, according to the National Treasury Management Agency (NTMA) end-of-year report.

National debt now stands at €37.6 billion, up from €36.3 billion at the end of 2006, after the projected exchequer deficit of €600 million widened to €1.6 billion in 2007, according to the latest figures from the Department of Finance.

This deficit accounts for virtually all of the increase in national debt this year, the NTMA said. In 2006, national debt fell as the Government ran a surplus.

The NTMA said yesterday that it expected either to seek a fresh bond issue or auction existing bonds in order to fund the Government's planned borrowings in 2008, rather than use some €4 billion of short-term borrowings that it holds in cash.

The increase in debt this year did not prevent the ratio of national debt to gross national product falling to 23.6 per cent, down from 24.1 per cent in 2006. The cost of servicing national debt was almost €360 million below budget.

The exchequer's interest payments on the debt fell "quite sharply" from almost €1.9 billion in 2006 to €1.6 billion, NTMA chief executive Dr Michael Somers said.

In 2007, some 3.4 per cent of the State's tax take was used to pay this interest, compared to 23.6 per cent when the NTMA was established in 1990.

The national debt is now equivalent to just over three months' tax revenue, down from four months at the end of 2006. In 1990, it took three months' tax revenue just to pay the interest on the debt.

It was a busy year for the NTMA, which manages a total of €63 billion in its asset and liability portfolios, while the value of its transactions in 2007 amounted to almost €540 billion.

In October, the NTMA issued a new 11-year €6 billion bond, which was three times oversubscribed despite the money market difficulties posed by the credit crunch. This was the largest deal ever executed by the NTMA and the largest by any government in Europe in 2007.

Dr Somers said a sense of unease about global capital markets following meetings with financial institutions in the US in September had prompted the NTMA to issue a long-term bond rather than use short-term debt.

The NTMA has no major sums of debt maturing in 2008 that require refinancing, but it needs to raise €4.8 billion in order to fund Government expenditure and its contribution to the National Pensions Reserve Fund (NPRF), which is designed to meet the cost of social welfare and public sector pensions from 2025.

The NTMA also has a €5 billion treasury bond maturing in 2009, a year in which its borrowing requirements will be "fairly significant".

The general Government debt is estimated to reach €47.2 billion at the end of 2007, an increase of €3.3 billion on 2006, according to the Department of Finance.

The ratio of general Government debt to gross domestic product (GDP), a measure used to compare national debt across EU member states, ended the year at 25.1 per cent, unchanged from 2006. Although this is the eighth-lowest ratio in the EU, Dr Somers said the Republic's position would be better if this measure took into account the €4 billion it holds in cash.

The ratio of general Government debt to GDP is expected to rise to 27 per cent next year.

The agency usually releases its end-of-year figures after stock markets close on New Year's Eve, and Mr Somers warned that dramatic events in the final days of trading could unsettle the figures.