The National Treasury Management Agency (NTMA) said on Wednesday, that interest payments on the debt were 3.8 per cent of tax revenue in 2008; the equivalent figure was 26.7 per cent when the NTMA was established in 1990. In 2009 the forecast is for 9.4 per cent of tax revenue, reflecting higher interest costs on a larger debt and lower tax revenues. While the interest burden will increase substantially over the period 2009-13, it will be no greater than the levels experienced in the mid-1990s - just short of 20 per cent. However, the addition of a bond of at least €50 billion to be issued to the Irish banks in return for transferring toxic property loans, is likely to put the level above 20 per cent.
The NTMA said that at end 2008 the General Government Debt/GDP (Gross Domestic Product) ratio was 41 per cent, well below the EU average of 60.6 per cent. The General Government Debt measure does not allow the cash balances to be offset against the gross position. Ireland's GDP is higher than GNP (Gross National Product) because of the dominance of multinationals in the Irish economy. So using the GDP denominator flatters the Irish result.
The Department of Finance has estimated Irish GNP at €156.3 billion in December 2008 while GDP was €187.4 billion.
The General Government Debt/GDP ratio is the measure used in the Euro Stability and Growth Pact.
Members of the Eurozone are required to limit annual deficits to 3% of GDP and the General Government Debt/GDP ratio to 60%.
Deducting the value of the National Pensions Reserve Fund and other funds managed by the NTMA from the gross debt would give a Debt/GDP ratio of around 30 per cent at the end 2008.
The NTMA will have responsibility for the new National Asset Management Agency (NAMA) which will acquire up to €90 billion in toxic property loans from the banks.
Stockbroker Davy has estimated that the banks would have to take a so-called haircut of 15 per cent in the transfer.
This would mean that the State would pay €76.5 billion for loans of €90 billion, which amounts to a fifth of all loans in the banking system - - 1.4 times the national debt of the State.
A figure of €50 billion is used by the NTMA as the size of a bond to be raised by NAMA.
However, the NTMA and Finance Minister Brian Lenihan said the figure was included for “illustrative” purposes to dismiss incorrect speculation on the potential scale of State debt as a proportion of the value of the economy.
The NTMA estimates that the addition of the €50 billion to the national debt will arise the ratio from 77 per cent in 2013 to 103 per cent - - similar to levels for Greece and Italy.
The NTMA also said the National Pension Reserve Fund’s value at 31 March 2009 was €15.5 billion - - down 6.7 per cent in the quarter, following a loss of -30.4 per cent in 2008.
The NTMA said the Fund’s first quarter decline was due to the performance of its equity portfolio as the global recession continued. Markets remained extremely volatile during the quarter and vulnerable to negative news flow, although they did rally towards end March as evidence emerged from the US that the pace of slowdown was moderating. For the quarter, the FTSE Eurozone index declined by 13.7 per cent and the S&P 500 fell 11.7 per cent. Combined with the difficult year experienced by global markets during 2008, this reduced the Fund’s annualised performance since inception to -0.4 per cent compared with 6.0 per cent at end 2007.
The Agency said while some commentators believe equity markets may have bottomed, it is difficult to be definitive at this stage and they remain vulnerable to bad news. At the moment, the best economic prospects would seem to be for some recovery in the US in 2010 with Europe following in 2011.
