n a reply to a parliamentary question to Joan Burton TD, the Minister for Finance, Brian Lenihan, has revealed that the National Debt is set to explode over the next four years and could reach €140bn by 2013, about equal to Ireland’s expected GNP for all of 2009. This does not include the issuance of bonds to fund NAMA, which the Government has estimated to reach €54bn. This follows a recent EU Commission projection that Ireland’s national debt could reach 200% of GDP by 2020.

Commenting on these national debt projections, Deputy Joan Burton TD said: “These numbers are mind blowing. They demonstrate the calamitous deterioration in the public finances on Fianna Fáil’s watch. Their reputation for sound economic management has been shown up to be a myth over the past 18 months. “

“When Labour left government in 1997, we left a balanced budget for the first time in living memory. Sound economic management means putting a little something away for a rainy day. Successive Fianna Fail Finance Ministers turned this logic on its head, slashing taxes and ramping up spending with little improvement in public services. This reckless pro-cyclical approach was epitomised by Charlie McCreevy’s reign of error when he simply said ‘when I have it, I spend it’. Anyone who manages the family could have told you that this was a recipe for disaster. These chickens are now coming home to roost. Fianna Fáil in Government have contrived to mortgage the future of our children and grandchildren. They will be the ones who end up paying for Fianna Fáil’s economic bungling through higher taxes and poorer public services to service this debt.”

“The ongoing cost of servicing the national debt is particularly worrisome. Even if interest rates remain at their current low levels, the cost of servicing the debt is set to quadruple in four years, and could be more than 5% of national income by 2012. If interest rates increase, as is thought likely, these costs could rise exponentially while NAMA would become a serious further drain on the exchequer. Even the Minister’s ‘best case scenario’ is a grave cause for concern, never mind what might happen if interest rates do not remain as benign as he seems to expect.”

Ireland’s National Debt stood at €69.3bn at end-August 2009, up from €50.4bn since the start of the year. With the state borrowing in the region of €400m per week, it is likely to rack up another €7bn in borrowings to fund current expenditure by end 2009, while a further multi-billion injection into Anglo Irish Bank is also expected by year-end. The Minister for Finance has forecast an exchequer shortfall totalling €67.5bn over the four years to end 2013, on top of which NAMA will have to be finance. It is unclear from the Minister’s reply whether these exchequer projections include bank recapitalisation, likely to total several billion over this period.

Debt service costs are set to total €26bn between end-August 2009 and end-2013, with the annual cost of interest and capital repayments set to quadruple from €2.1bn in 2008 to €8.4bn in 2012 (in the region of 5% of projected GNP for 2009).

Below is the relevant parliamentary reply from Minister Lenihan, received by Joan Burton TD on 22nd September.

DÁIL QUESTION

NO 100 & 129

To ask the Minister for Finance his estimate and forecast on the level of the National Debt for each year from 2008 to 2013; the cost of servicing this debt from the Central Fund for each year from 2008 to 2013; the composition of such debt servicing costs; and if he will make a statement on the matter.

– Ruairí Quinn.
* For WRITTEN answer on Tuesday, 22nd September, 2009.
Ref No: 32037/09

To ask the Minister for Finance if he will provide an estimate of the total cost of servicing the national debt, including National Assets Management Agency bonds, for the years 2009, 2010, 2011 and 2012; and if he will make a statement on the matter.

– Joan Burton.
* For WRITTEN answer on Tuesday, 22nd September, 2009.
Ref No: 32386/09

REPLY

Minister for Finance ( Mr Lenihan) : I propose to take questions number 100 and 129 together.

At end 2008, the national debt stood at €50.4 billion and at end-August 2009 it stood at €69.3 billion. The National Treasury Management Agency (NTMA) have advised that the main factor influencing the projected increase in the national debt out to 2013 is the planned Exchequer deficit for each of these years. In addition, there may also, in any given year, be some non-cash adjustments related to factors such as premiums and discounts on the issue of new bonds – in 2008, these amounted to €124 million.

The details of the forecast Exchequer balances for 2009-2013 as set out in the Supplementary Budget are outlined out in Table 1 below.

Table 1: Supplementary Budget forecasts for the Exchequer Balance 2009-2013:
2009 2010 2011 2012 2013
Exchequer Balance -€20.35bn -€19.9bn -€17.8bn -€13.4bn -€9.4bn

In respect of 2009, the Supplementary Budget forecast an Exchequer deficit of €20.35 billion. Since then a capital injection of €4 billion has been agreed for Anglo Irish Bank, of which €3.8 billion had been paid at end-August 2009. This increases the forecast Exchequer deficit by this amount but does not impact on the General Government Balance (GGB) under EUROSTAT accounting rules.

The General Government Debt is the standard measurement of gross indebtedness used for comparative purposes within the EU. It is a wider measure of debt than the national debt and includes the debt of the Exchequer, the extra-budgetary funds, the non-commercial state-sponsored bodies, as well as the debt of local authorities. As reported to EUROSTAT in the April EDP Maastricht returns, the General Government Debt stood at 43% of GDP at end-2008. Based on the forecasted position for the General Government Debt at Supplementary Budget time, the expected trajectory for the General Government Debt over the period to 2013 is outlined in Table 2 below.

Table 2: General Government Debt developments:
2009 2010 2011 2012 2013
GG Debt
% of GDP 59% 73% 78% 79% 77%

The NTMA advise on the likely total debt servicing costs for future years. These costs for the period 2008-2013 are set out in Table 3 below. The NTMA have advised that, as is usual, the estimates for debt servicing costs were prepared on the basis of the prevailing market conditions for Irish Government bonds at the time of the Supplementary Budget. As with other budestimates, these forecasts, which align with the recently published NTMA Annual Report, will be reviewed as part of the forthcoming budgetary process.

Table 3: Supplementary Budget forecast Debt Servicing Costs 2009-2013 & Outturn 2008:
Outturn
2008
€bn Forecast
2009
€bn Forecast
2010
€bn Forecast
2011
€bn Forecast
2012
€bn Forecast
2013
€bn
Interest 1.5 3.2 5.0 6.4 7.5 8.2
Sinking Fund* and other debt management expenses 0.6 0.7 0.8 0.8 0.9 0.9
7.3 2.1 3.9 5.8 7.3 8.4 9.1
Rounding may affect totals
*The sinking fund provision is a transfer from the current account of the Exchequer to the capital account of the Exchequer – it has no impact on the overall Exchequer balance – and represents an element of paying off the principal.

With regard to the servicing of NAMA bonds, I indicated on the 16th of September that the cash flow produced will be sufficient to cover interest payments on the NAMA bonds and operating costs. This projection is based on provisional information and will depend on the outcome of a loan by loan assessment to be undertaken by NAMA.