NTMA to issue more bonds due to economic downturn

The National Treasury Management Agency (NTMA) has been forced to raise its bond issuance forecasts for next year by €2 billion because of the downturn in the public finances.

In an interview with Reuters, NTMA chief executive, Mr Michael Somers, said that bonds worth about €7 billion would be issued next year. A few months ago, the NTMA - the body which manages the State's national debt - had expected to issue bonds worth between €2.5 billion and €5 billion in 2003.

This forecast, based on an expected Exchequer surplus of €170 million for 2002, has now been raised in line with Government predictions that the public finances will be in deficit by €750 million at the end of December.

With no surplus left to pay off the national debt, the NTMA needs to source other means of raising money. At the end of September, the national debt stood at €36.2 billion.

Most economists are predicting that this year's deficit will exceed the Government's €750 million target by at least a quarter of a billion.

Davy Stockbrokers chief economist, Mr Robbie Kelleher, who is predicting an Exchequer deficit of slightly more than €1 billion this year, said yesterday that a €2 billion overshoot in the NTMA's forecasts would not be surprising.

"We're going to have to repay debt of the order of at least three billion euros next year and then it depends what the deficit is going to be on top of that," Mr Somers said.

He said that the NTMA would maintain this year's issuance level of about €7 billion in 2003.

"Our intention would be just to have a series of monthly auctions for 10 months next year - again for roughly the same amount as this year, which is €600 million in a straightforward auction each month and another €120 million a month in non-competitive auction," Mr Somers said. He added that the agency would also look at refinancing short-term paper.

This month's €600 million auction is to be held today.

By the end of 2002, the Republic's bond issuance will have refinanced around €5 billion of long-term debt and €2 billion in short-term debt.

The NTMA currently has two benchmark treasury bonds - a five-year yielding 4.25 per cent due on 2007 and a 5 per cent 10-year bond due in 2013.

Mr Somers said the NTMA was unlikely to replace these issues, which were established earlier this year, before 2004.

"The likelihood is we'll issue more into our 2016 bond, which is currently at around €4.5 billion, if the market indicates there is demand," he said.

If this approach is adopted, the 2016 bond will go over the €5 billion mark, meaning that it will have to be electronically quoted on the EURO MTS system.

The Republic's debt-to-Gross Domestic Product (GDP) ratio has fallen back into the mid-30 per cent range, the second lowest in the euro zone after Luxembourg. In the late 1980s it soared to 130 per cent and the bulk of tax receipts went to paying off debt.

While the amount of debt has not changed substantially in absolute terms, income rose sharply over a half decade of boom up until last year, reducing the debt burden.

- (Additional reporting Reuters)