The success of the National Treasury Management Agency (NTMA) in issuing 100-year debt and raising €100 million – repayable in 2116 – at a low (2.35 per cent) yield represents a further significant milestone in Ireland's economic recovery story. Although the amount borrowed is small, relative to the State's outstanding gross debt of €204 billion, the successful issuance of Ireland's first long maturity bond represents a vote of confidence by international lenders in the country's economic future. Further longer term debt issues may be in the offing, albeit building more on the success of a 30-year issue last year than trying to raise significant amounts at even longer maturities.
Five years ago following the EU/IMF bailout, the credit rating agencies cut Ireland’s sovereign debt rating to junk status. The State’s cost of borrowing had reached a record high, with the yield or interest rate on the 10-year benchmark bond exceeding 14 per cent. The bond yield has since dropped to below 0.8 per cent.
Interest rates – in Ireland as elsewhere – have fallen to historic lows as the world’s central banks have tried to stimulate economic activity and to avoid deflation by lowering rates and by engaging in quantitative easing via money-printing policy measures. In those countries where interest rates have turned negative, investors are now paying to lend to governments.
Ireland’s debt burden continues to weigh heavily on taxpayers. In 2007, at the peak of the boom, the annual debt interest payment was close to €2 billion. But as public debt soared in response to the financial crisis, so too has the debt interest bill which is now almost four times larger.
Although the absolute level of State debt is not projected to decline in the medium term, the debt to GDP ratio – at 97 per cent in 2015 – should fall rapidly. That ratio is forecast to reach 76 per cent in 2021. So long as the economic growth rate remains higher than the average interest rate payable on public debt, which the NTMA estimates at below 3.5 per cent, that should make the debt burden more sustainable.