Pandemic will have added €35bn to the national debt by year's end

Paschal Donohoe will also tell his Cabinet colleagues today that the projected economic recovery depends on the vaccine rollout

Finance minister Paschal Donohoe Picture: Moya Nolan

The Covid-19 pandemic will have added more than €35bn to the national debt by the end of this year, the Cabinet will hear today.

The State will run a deficit of €17bn this year on top of last year's €18.5bn deficit due to the economic shutdown caused by the pandemic, after the budget surplus in 2019.

Paschal Donohoe, the finance minister, will tell his colleagues that he and his department expect the economy to grow by 4.5% this year and 5% next year, even after the impact of the pandemic has been factored in.

The financial update to Cabinet will allow him to publish his Stability Programme Update (SPU), which must be submitted to the European Commission and European Council by the end of this month.

After recording a general Government deficit of €18.5bn or 5% of GDP last year, a further deficit of about €17bn — or 4.7% of GDP — is in prospect for this year, before falling to 2.8% of GDP next year, the finance department is estimating.

When the impact of foreign multinational profits is stripped out, modified domestic demand is projected to grow by 2.5% this year and 7.5% next year.

The Irish Examiner understands the SPU includes a “downside scenario”, which could occur based on a severe epidemiological scenario, whereby the current restrictions need to remain in place over a prolonged period.

In this instance, GDP growth this year would be almost one percentage point lower and would be 2.5 percentage points lower next year.

This means the Irish economy would be approximately 4% smaller by the end of next year than it would under the baseline forecast, Mr Donohoe will say.

Ministers will hear that the country’s economic recovery over the second half of this year and into next year rests on the success of the vaccination programme and the assumption of an easing of public health restrictions.

“This [the vaccination programme] is being significantly ramped up in the second quarter and should allow for a more significant but cautious easing of containment measures over the summer,” Mr Donohoe will tell ministers.

“This will allow for a substantive and sustainable recovery to begin.”

The note to ministers says the macroeconomic outlook in the SPU includes steps already announced to address the Covid-19 pandemic.