Cost of borrowing still ‘manageable’ despite likely deficit rise

THE National Treasury Management Agency (NTMA) – the body responsible for Ireland’s debt management – said the cost of borrowing is still “manageable”.

While the agency is “disappointed” at the higher cost of borrowing over Germany, John Corrigan, managing director of the NTMA, said the cost of borrowing today compares favourably with the rate in February or May of 2009.

Back then the state was paying interest of 6.1% on money borrowed compared with 5.4% to 5.5% today.

Given the “extraordinary period” the markets have had to go through, including the €750 billion provision by the ECB to fund the banking sector, Mr Corrigan said the economy has withstood the worst effects compared with countries like Greece and Portugal.

And while some agencies have Irish debt on “negative watch, we find it of some comfort that we have been steady in our rating since the fourth quarter of last year”, he said.

He confirmed that the agency has informed those same markets this country’s government deficit is likely to rise as a result of bailing out the banks.

Earlier, the Economic and Social Research Institute said the inclusion of the cost of the recapitalisation of Anglo Irish and Irish Nationwide would bring Ireland’s deficit to almost 20% for 2010, the highest in the developed world.

“We flagged the possibility the deficit could rise as a consequence of investment in the banks,” Mr Corrigan said.

International investors were comfortable with that given it is a one-off cost and would not re-appear in the national accounts in future years.

Mr Corrigan said that despite concerns about our funding ability, Ireland has enough money in its coffers to last until the first quarter of 2011 without having to raise more money this year. In all, €15bn in bond funding was concluded in the first half of 2010. In effect more than 80% of the planned €20bn borrowing target for this year has already been raised. The exchequer was “fully funded” to meet its needs through to the first quarter of 2011, he said.

It also has cash balances of about €20bn giving it added security in terms of its funding situation, he said.

Due to the increased borrowing forced on the state to fund the banks and the budget deficit, the country’s debt/GDP ratio was set to rise from 65.6% at end of 2009 to 86.9% by the end of 2010 pushing it slightly above the EU average.

When cash balances and the €24bn in the National Pension Reserve Fund are included that ratio stood at just under 38% at the end 2009.


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