IMF loan plan may save €500m

The savings to the exchequer of refinancing Ireland’s IMF loans could be as much as €125m higher than initially thought.

Analysis by Davy Stockbrokers shows that a Government plan to pay back some of the IMF loans early could save the country’s finances as much as €500m per year if either the entire €22bn was repaid or, alternatively, if cash balances were eroded.

The early-repayment plan was originally mooted by Finance Minister Michael Noonan last month with the proposal being to repay €15bn in three tranches of €5bn which, it was estimated, could save the exchequer as much as €375m per annum.

Speaking yesterday, however, Davy economist, David McNamara said the potential savings could be even greater.

“The minister indicated this operation could save the exchequer €375m in debt interest costs per annum. However, the savings could actually be greater than €500m per annum if cash balances are eroded or if the entire €22bn is refinanced,” said Mr McNamara.

Earlier this month, the IMF confirmed that the loans could be repaid early without incurring any extra fees.

Additionally, Davy estimates that Ireland’s debt/GDP ratio could evolve more favourably than was anticipated in previous forecasts published earlier this month, as a result of what it terms “two key developments that could benefit Ireland’s sustainability”.

Other than refinancing the IMF loans, a gradual sale of the government’s stakes in the banking sector could also impact favourably — seeing the debt/GDP ratio fall to 92% by 2018; as opposed to the 99% figure estimated.

This reviewed scenario is based on the Government gradually selling off its stakes in the banking sector by divesting its remaining 14% stake in Bank of Ireland in 2015 and gradually selling 25% of its equity in Allied Irish Banks per annum between 2015 and 2018.

Conservatively, the scenario does not take into account any benefit of the liquidation of IBRC or from Nama’s accelerated wind-down, according to Davy. It also ignores any further possible requirements that may be necessary for PTSB arising out of the forthcoming stress test, the stockbrokers said.