Lenihan says deficit cut targets still achievable

FINANCE Minister Brian Lenihan has said that, while Ireland’s economic growth will be slower than initially anticipated, the Government can still meet its budget deficit reduction targets by the 2014 deadline.

Addressing the annual conference of the Irish Banking Federation (IBF), in Dublin yesterday, the minister called the task of meeting the commitment to reduce the budget deficit to 3% of GDP by 2014 “daunting”, but added that Government remains steadfast in its determination to deliver the reduction on time.

Mr Lenihan said, while many countries need to reduce their budget deficits, “the stakes are higher” for Ireland, given the recent deterioration in market sentiment towards us and the resulting rise in borrowing costs for the state.

“We must get these borrowing costs down. To do so, we must secure significantly more savings than had been announced in Budget 2010. The main reason for this additional requirement is growth in the international economy and our economy isn’t expected to be as robust as previously forecast,” he said, but the economy has stopped declining.

The Government is sticking with its original forecast of close to 11.9% of GDP for this year’s deficit; although the bank bail-out cost will boost the headline deficit (to be spread across ten years) to 32% of GDP.

Mr Lenihan said interest payments on the increased national debt, arising from the bank rescue, will put pressure on the deficit; adding the banking decline isn’t the standalone cause for Ireland’s economic woes.

“It is important to note that the cost of the bank rescue accounts for less than 10% of our annual borrowing requirement and, as stated by the Governor of the Central Bank, this figure is manageable. The argument that the banks are the source of all our problems is simply wrong. The bulk of our budgetary problems reflect the large gap between revenues and state spending on public services and we have to address this,” he said.

Later in the day, when addressing the Dáil, the Finance Minister said the NTMA would return to the bond markets in January and Anglo Irish Bank could try to buy back subordinated debt from bondholders, at a hefty discount, in order to reduce the cost of bailing out the nationalised lender.