Early debt payback to impact on the Budget

The expected savings of up to €3bn in interest repayments from repaying the IMF early will have an impact on the Budget for next year, Finance Minister Michael Noonan has said.

This follows agreement in principle by the euro-zone finance ministers and the EU institutions and the IMF to waive the terms of the legal contract Ireland signed for €67.5bn rescue loans.

However, Ireland will have to wait at least four weeks to finally learn if it can repay the IMF loan early, as the German parliament will vote on the issue on October 10, and Sweden needs to elect a new government this weekend.

If there is no agreement, then the interest rate of around 5% currently being paid to the IMF will increase in January — a rule meant to be an incentive to borrowing countries to repay debt early, a Department of Finance source confirmed.

A clearly relieved and happy Mr Noonan, said the next hurdles would be to get the same agreement from the non-eurozone countries today, and that left only Sweden, that is having a general election on Sunday, and the German parliament.

He said that the German finance minister Wolfgang Schauble, was supportive but the decision was not for him to make and had to go to the Bundestag, the German parliament, to be voted on.

“He is quite happy but very conscious of the legal position, as the decision is not for him or the German government but for the parliament. He will put it to the parliament on 10 Oct and he did not give me any indication that he had any doubts about it”, said Mr Noonan following a meeting of eurogroup ministers in Milan.

Mr Noonan said that whether the savings are put into reducing Ireland’s debt of 117% of GDP, or in reducing the deficit next year would have much the same effect.

“You can take a slice off the top of the debt to reduce the total or channel it through the budget to reduce the deficit so you are preventing your debt going up,” said Mr Noonan.

“So whichever way you do it, it will have some debt sustainability issue, so it will have effect on the Irish budget.

“We will probably include a prudent and modest figure for additional savings in the NTMA in the budget figures.”

The IMF repayment move was welcomed by Klaus Regling, the head of the ESM/EFSF that raised the EU’s €16bn contribution to the bail-out, and ECB president Mario Draghi said they had “taken note” of the Government’s decision.

Mr Noonan said Mr Draghi told the meeting that Ireland had made extraordinary progress in improving its economic position in its position in the market and that he said he had another issue that he wanted to raise with the Irish authorities re the promissory notes — but that it was another issue to be discussed elsewhere.