Government in 'comfortable position' to finance its Covid-19 costs

Exchequer has resources of about €40bn going into the second half of the year, says economist

The National Treasury Management Agency raised a total of €1.5bn in its latest auction of sovereign bonds across a number of benchmarks bonds.

The Government so far is "in a comfortable position" to finance its Covid-19 bills through this year, the chief economist at the Irish Fiscal Advisory Council (IFAC) has said. 

Eddie Casey at IFAC, which was set up  following the last financial crisis, said the exchequer has resources of about €40bn going into the second half of the year – before it takes account of its Covid-related 2021 budget deficit and sovereign bond repayments.

"They are in a comfortable position going into the end of the year as things are at the moment," Mr Casey told the Irish Examiner. 

'Further deficits coming up'

"But they look set to extend some of the income-support schemes that they have and we know that there will be further deficits coming up in the next few years," he added.

IFAC is due to issue its latest report later this month.     

The comments came as the National Treasury Management Agency (NTMA) raised a total of €1.5bn in its latest auction of sovereign bonds across a number of benchmarks bonds.   

The debt agency paid yields or interest rates which were slightly higher for some of those bonds compared with last year, but the yields remain close to historically-low levels.  

Global interest rates have edged higher in recent weeks as the US economy starts to grow strongly, helped by the huge stimulus injected into its economy following the Covid-19 crisis.

The ECB continues to spend big, however, on its buying of sovereign and other bonds, with the aim of keeping the financing costs for eurozone governments close to historically low levels, helping them fund the Covid-crisis costs. 

Interest rate of 0.3%

That means the NTMA was able to borrow €800m in a bond to be paid back in 10 years at Thursday's auction at an interest rate of 0.3%. 

That cost is up from the negative yields it was paying for similar 10-year bond borrowings at the depth of the Covid global economic crisis at auctions last year, but the rates mean the State is still borrowing at rates that are close to zero. 

As part of the auction, the debt agency also raised €300m by tapping a 2050 bond – for repayment in almost 30 years – at a yield of only 1%. Thursday's s auction means the NTMA has so far raised €12bn from its benchmark bonds this year. 

Ahead of Thursday's auction, the exchequer had about €40bn in resources, including cash of about €17bn. The resources include items such as the €2.5bn it gets this year from the EU's so-called "support to mitigate unemployment risks in an emergency", or SURE, loans programme, designed to cover a large part of the cost of last year's temporary-wage subsidy scheme. 

Finance 2021 budget deficit

From the €40bn, the Government has to finance the 2021 budget deficit and bond repayments.

Last month, in the so-called Stability Programme Update prepared for the EU, the Department of Finance forecast a budget deficit of €18.1bn, equivalent to 4.7% of GDP, for this year.    

That followed a budget deficit of €18.4bn posted in 2020.  

National debt as measured by gross debt is expected to reach almost €240bn by the end of the year. 

Many economists believe the costs of servicing that debt will remain at low levels.