IRELAND will spend €5.2 billion – 16% of all tax collected – on servicing a record national debt of €116 billion in 2010, as the country pays interest rates of almost 6% to fund Government spending.
Servicing the national debt will eat up almost every euro collected in Corporation Tax this year and next, according to estimates by Goodbody Stockbrokers.
The National Treasury Management Agency (NTMA) this week raised an extra €6 billion on international bond markets with the issue of a 10 year bond paying 5.93% a year, a massive 2.48 percentage points greater than similar debt raised by Germany.
Goodbody banking analyst Deirdre Ryan said while it is encouraging that Ireland has been successful in its financing requirements thus far, the continued high yield on Irish bonds is a concern, given the implications it will have on the debt servicing costs.
"We estimate that interest payments on the national debt will amount to €3.5bn this year (or 11% of tax revenues), and €5.2bn (or 16% of the tax take) next year. It further underlines the importance of taking the necessary measures to tackle the structural deficit within the public finances, thus restoring confidence in relation to Ireland’s fiscal position," she said.
Goodbody estimates that Government debt will be €92 billion by the end of this year, up from €61 billion at the end of May. Goodbody noted the premium rates of interest Ireland is forced to pay, because of our poor credit rating, to raise funds continues to remain the highest in the Eurozone, even greater than Greece where 10 year bonds command a yield of 1.85 percentage points above the benchmark German rate.
"Nevertheless, needs must, so the NTMA are concentrating more on the success of selling the bonds rather than become obsessed with the price," she added.
Through a combination of auctions and syndicated bonds, Ireland has raised €20bn it plans to borrow this year to finance a budget deficit forecast to exceed 10% of gross domestic product.
a d v e r t i s e m e n t
This appeared in the printed version of the Irish Examiner Thursday, June 25, 2009
