Ireland’s National Debt stood at €84.0bn at June 30, 2010 and international investors hold 80% of Irish debt. Meanwhile the National Pensions Reserve Fund Discretionary Portfolio (the Fund excluding its bailout investments in Irish banks) earned a return of -2.6% in the three months to end June 2010 and of 2.3% over the first six months of the year. Ireland will need to borrow in excess of €18.5bn in 2010, just to keep this country going

The NTMA today published its Annual Report 2009 and provided an update on activities across the range of its business functions: management of the National Debt, the National Pensions Reserve Fund, the National Asset Management Agency, the National Development Finance Agency, the State Claims Agency and its banking system functions.

Speaking today, NTMA Chief Executive John Corrigan said:“2010 has been an exceptionally busy year so far for the NTMA particularly in the funding and debt management and banking system areas and in bringing NAMA from a start-up to being a fully operational entity.  Our experience over the last 18 months has underlined the linkages between many of the activities in which we are involved.  Resolution of the banking problem is central to ensuring the sustainability of the Exchequer funding position and to reducing the interest rates we pay on our bonds.  This, in turn, will assist both the fiscal position and the banks’ ability to raise funding and increase the flow of credit to the real economy.”

Funding and Debt Management: The NTMA raised €15.0bn in long-term bond funding in the six months to end June 2010 and, as a result, begins the second half of the year in a very strong funding position. When strong sales of the retail State Savings products are factored in, more than 80% of the planned €20bn borrowing in 2010 has already been raised. Taking the maturity profile of the NTMA’s short-term borrowing into account, the Exchequer is fully funded through the first quarter of 2011.

The yield premium, or spread, over Germany which Ireland pays on its 10 year bonds declined from peak 2009 levels of nearly 3.0% to around 1.5% at the start of 2010. However, it rose sharply at the end of April 2010 due to a number of factors, including the sovereign funding uncertainties within the EU. The spread over Germany, having widened to 3.0%, has narrowed somewhat in recent weeks and is currently around 2.8%. However, in absolute terms, Irish bond yields have fallen over the last year or so from a peak of 6.1% per annum in March 2009 to 5.5% per annum currently.   

Ireland is a relatively small issuer and international investors hold some 80% of our long-term debt. The NTMA says it undertook an extensive marketing campaign during the second quarter of 2010 to brief existing and prospective institutional investors on developments in the Irish economy and the substantial efforts that have been made to address the fiscal, economic and banking issues facing the country. The NTMA conducted a comprehensive round of meetings and presentations to investors in Europe, North America and the Far East. 

The NTMA’s policy of maintaining large cash balances has underpinned investor confidence and provided valuable flexibility in the timing of its borrowing during 2009 and 2010.  Cash balances were around €20bn at end June 2010

Retail debt (through State Savings products) continues to make a strong contribution to overall funding needs with inflows of €1.4bn during the first six months of 2010. Investment in the new National Solidarity Bond aimed at individuals and families and allowing them to invest their savings with the State for up to ten years has topped €100 million since it was announced by the Minister for Finance.

At June 30, 2010, Ireland’s National Debt stood at €84.0bn.

The General Government Debt/GDP ratio was 65.6% at end 2009 and is projected to reach 86.9% at end 2010 - - close to the Eurozone average of 84.7%. General Government Debt is a “gross” measure and does not allow for the offsetting of Exchequer cash balances or the assets of the National Pensions Reserve Fund against the gross position.  On a net basis, Ireland’s debt/GDP ratio was 37.9% at end 2009.

National Pensions Reserve Fund

The National Pensions Reserve Fund Discretionary Portfolio (the Fund excluding its bailout investments in Irish banks) earned a return of -2.6% in the three months to end June 2010 and of 2.3% over the first six months of the year. Since the Fund’s inception in 2001, the annualised performance of the Discretionary Portfolio is 2.7% per annum compared with an annualised return to the average Irish managed pension fund of 0.7% per annum over the same period.

The bank investments secured a return of 0.3% over the quarter and 4.5% for the year to date. In February and May 2010 the Fund received ordinary shares in Bank of Ireland and Allied Irish Banks plc (AIB) respectively in lieu of cash as payment of the first dividend on its preference share investments in these institutions. The payment was made in the form of ordinary shares as the European Commission requested that discretionary coupon payments on Tier 1 and Upper Tier 2 capital instruments in Bank of Ireland and AIB not be paid while it considered each bank’s restructuring plan.

In April 2010 the Minister for Finance issued directions to the National Pensions Reserve Fund Commission to convert part of its €3.5bn holding of Bank of Ireland preference stock into ordinary stock as part of the bank’s capital raising exercise. Including the proceeds from the cancellation of the warrants issued in conjunction with the preference stock and fees, the Fund received total cash income of €543m from Bank of Ireland for participation in the transaction.

Following the above transactions the Fund now holds 36.5% of the ordinary shares of Bank of Ireland in issue and 18.6% of the ordinary shares of AIB in issue.

The Total Fund earned a return of -1.7% over the quarter and 3.0% for the year to date. Since inception, the annualised performance of the Total Fund is 1.9%.

At 30 June 2010 the Fund’s value stood at €24.1bn.

The Minister for Finance, Brian Lenihan, said: "This year, we will borrow in excess of €18.5bn just to keep this country going. That is the ongoing borrowing figure that we need to reduce and that is what our focus should be now. What we have instead from commentators, academic economists, and the political class is a fixation on the cost of the banking crisis. I agree that the cost of that crisis is unacceptable high. But too often it has become almost a decoy to avoid the really difficult question of how we align the cost of running this State with the revenue we collect from taxpayers.

The fact is, the cost to the taxpayer of repairing our banking system, although it is unacceptably high, is a once off cost. The cost of running the State is a long term, strategic issue that will bear on generations to come and it is an issue that deserves serious analysis and debate in which we must all engage. That is the debate that will, or certainly should, be pre-eminent in the coming months. We must make savings of €3bn. That involves difficult choices which I will be discussing with my colleagues over the next number of months. But the notion one regularly hears from some otherwise sensible people, that we would not need to make such difficult choices were it not for the banks, is plain wrong. This State has to live within its means and that is the biggest challenge facing us all.

We now know that the cost to the taxpayer of fixing the banks will be about €25bn over an extended period of time. This is the amount that will be added to our national debt to prevent a collapse of the banking system.

And it is of no comfort that at 16% of GDP, the cost to the taxpayer is no larger than the average cost of banking crises around the world over the past few decades. But, as Professor Honohan has said, the cost, albeit unacceptable, is manageable."

NTMA Annual Report 2009