Repaying IMF early could save €375m

Ireland could make an annual saving of €375m after confirmation from the International Monetary Fund (IMF) that loans provided as part of the troika package can be repaid early without incurring any additional fees.

The plan, originally mooted by Finance Minister Michael Noonan last month, would see the government repay almost €18bn in debt, thus reducing the total amount below the threshold at which costly surcharges are applied.

Speaking last month, Mr Noonan said that by repaying €15bn of the more than €22bn the government owes to the IMF, the country could save up to €375m a year.

Confirmation from the IMF, which along with the European Commission and European Central Bank make up the troika, that early repayment would not entail any charges or conditions was yesterday released by Fianna Fáil finance spokesperson, Michael McGrath, following receipt of a letter from IMF mission chief for Ireland, Craig Beaumont.

“The IMF accepts early repayments of credit with no fee or charge nor any conditionality on the part of the IMF. Early repayments are not unusual, including examples in recent years of Latvia, Hungary, and Iceland among others.

“Ireland can decide to repay its outstanding IMF credit early, including based on considerations of interest rate differentials and their potential budgetary implications,” the letter reads.

Ireland is currently paying interest of 4.99% on the IMF loans; a rate far in excess of the cost of borrowing on international markets.

The proposed plan would require prior consent from Ireland’s European lenders as under the troika agreement any early repayment on the IMF borrowings would require an equivalent repayment on its EU borrowings.

Early repayment of the much cheaper EU loans is not in Ireland’s best interest however, and any such move would negate much of the savings derived from repaying a proportion of the IMF loans early.

“Given the benign borrowing conditions at present, the €20bn cash stockpile held by the NTMA and the fact that we are paying almost 5% on the IMF loans, it makes perfect sense for the government to pursue the possibility of repaying the loans early,” said Mr McGrath.

He said the government now needs to follow up on this with the other international lenders who provided funds under the bailout programme so that the early repayment of the IMF loans does not trigger proportionate repayments to other lenders.