11% of tax to be spent on national debt
The National Treasury Management Agency (NTMA) raised a further €1bn in what appears to be its most successful bond auction so far this year, drawing bids of three to four times the bonds on offer, sending the premium demanded by investors for holding Irish debt to the lowest since mid-June.
As the national debt screams past the €66bn mark, heading for €92bn by the end of the year, it is expected that 11% of all tax collected will be needed to cover interest payments this year, jumping to 16%, on Goodbody estimates, next year and up from just 4.5% of all tax collected in 2007.
Bloxham analyst Alan McQuaid said that the NTMA’s bond sales programme for 2009 effectively covers Ireland’s funding needs of €20bn as announced in the Supplementary Budget on April 7 as well as refinancing a €5bn bond which matured in April.
“The agency has now raised a total of €16bn through three syndicated bond issues in January, February and June in addition to €5.7bn in five bond auctions held in the months of March through July. Another four auctions are due to be held from August to November to raise the remaining money,” he said.
Mr McQuaid said there is no doubt investor risk appetite has picked up in recent months which has helped the NTMA.
He said: “However, we as a country shouldn’t become complacent and believe that the answer to all our problems is to keep on borrowing. Quite simply, the huge levels of debt we are building up are unsustainable in the long-run.
“Ireland is now in a position where it needs to borrow more to fund a larger budgetary deficit, while paying higher costs for this borrowing.
“This means that ever increasing proportions of the country’s tax revenues will be needed to service the national debt.”
Mr McQuaid said the Government cannot afford to sit back and relax with regard to the Irish public finances.
“It has already taken the first steps on the road to sorting out the dire budgetary position by 2013. If it delivers on much needed spending cuts, then there is no reason why the NTMA should have any difficulty in selling government bonds in the months ahead, and why yield spreads over Germany can’t narrow.
“However, failure to act on the report of An Bord Snip Nua will only increase the funding costs for the country and put an unnecessary financial burden on future generations,” he added.
The 10-year Irish/German bond yield spread tightened to 198 basis points from 206 basis points before yesterday auction, the success of which raised the prospect that Dublin could soon start prefunding for its 2010 borrowing needs.
* See Ireland’s national debt mount before your own eyes at: http://www.financedublin.com/debtclock.php
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