NTMA may need to raise over €25bn

THE National Treasury Management Agency (NTMA) may have to raise more than its targeted €25 billion this year to fund Government spending, as tax revenues fall and more money is required to fund burgeoning government borrowing.

The Government’s tax take is falling behind estimates. Last week’s Exchequer returns for July showed a shortfall in tax revenue of €575 million compared to official expectations.

NCB economist Brian Devine believes the Government will miss its budget deficit target of €20.4bn by as much as €1bn.

And Bloxham Stockbrokers chief economist Alan McQuaid estimates that this year, more than 11% of estimated tax revenues will be used to pay interest on Government borrowings compared with a figure of about 4.5% of tax revenues as recently as 2007. The National Debt at the end of July 2009 stood at €67bn.

“Although the NTMA has been successful in raising the funds to run the country this year, we as a nation 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,” he said.

Yesterday, the NTMA raised a further €1bn in two tranches with both offerings oversubscribed, one of €400m of 4% debt maturing in 2014 to yield an average 3.93% and €600m of 4.5% securities due 2018 to yield 4.55%.

The agency has raised €16bn through three syndicated bond issues in January, February and June in addition to €6.7bn in six bond auctions held in the months of March through August. Three more auctions are scheduled to be held from September to November.

Ireland probably needs to raise around €20bn to help meet its 2010 budget deficit the deputy head of funding at the NTMA, Anthony Linehan, said yesterday.

“I think we will be roughly be around the same (as for 2009),” he replied when asked by Reuters about next year’s funding requirement. “Around €20bn again, I think, but we will wait to see what comes out of the budget.”

Mr Linehan said some of the funding for 2010 would be raised in bond auctions later this year.

“Obviously we will continue the auction programme so some of that will go into pre-funding for next year,” he said.

“There is a lot of demand out there for Irish bonds at the moment,” Mr Linehan said, adding that the “dramatically negative perception” of Ireland has changed.

While Alan McQuaid believes the agency has done an excellent job in securing funds, he believes risks lay ahead.

“The NAMA legislation, the Lisbon treaty referendum re-run and the 2010 budget itself are all potential banana skins for the Government over the next few months, any one of which has the potential to send Irish borrowing costs soaring again if things go the wrong way.

“However, on the assumption that there are no unpleasant surprises over the remainder of 2009, and the Government sticks to its goal of ‘cleansing’ the banking system, and of getting the public finances back in order, then there is no reason in our view why demand for Irish government bonds shouldn’t remain strong.”