The National Debt


#461

@2Pack - We were told the government finances would be in balance this year but I now see this document which sets out

the 2019 Exchequer Borrowing Requirement (EBR) on both a monthly and a cumulative basis

and which states that

Exchequer revenue of €74,308 million is projected for this year. Total Exchequer expenditure
is forecast as €76,698 million, resulting in an EBR of €2,390 million for the year.

Not clear about the discrepancy with the NTMA EBR figure of €2,100 million

https://assets.gov.ie/7169/e055748756a841e58823d381486d269a.pdf


#462

I might have figured it, the exchequer will borrow 2bn plus but the social insurance fund will end up with €2bn in cash (it only had €0.5bn at end 2016) so these net each other off leaving government ‘in balance’ in 2019.


#463

NTMA raises 1 billion euro with a ten year bond at a record low rate of interest.

What is this country going to be like in 2029 when these bonds fall due? Remember where we were in 2009?
Anyway the bond markets are full of confidence in us!

Why can’t I raise some cheap cash like this? I’m good for it and I’ll only take a million.

I would pay €3,000 interest every First of January on the nail for the next 10 years and, honest to God, I’d pay back that million in 2029, every last cent of it (assuming I can refinance it like the big boys).
https://www.irishtimes.com/business/economy/ntma-sells-1bn-in-bonds-at-a-third-of-the-interest-rate-set-in-january-1.3924455


#464

The falling due situation is far more manageable after 2020, The largest hump of debt falling due is next year and no particular year in the 2020s and 2030s is as high as 2019 and 2020 are. Some individual years in the 2020s are very low.

In 2009/10 we had a lot of 2 year and 5 year debt imminent, much like Italy today. I am surprised they only sold €1bn at that low rate, to be honest, but a least they now only have around 7 billion total they absolutely have to raise between now and the middle of 2021 (barring a serious recession which is also possible) and can use also ECB capital key rebalancing to help avoidthe debt markets while Brexit settles down as well as use the ECBs overall weight to keep the interest rates low during that time.

The world is very fuzzy from 2020 onwards though. :frowning:


#465

@2Pack The EBR of 2.3 Bn. comes from the 2019 Budget documentation.

Turning to 2019, an Exchequer Borrowing Requirement (EBR) of €2.3 billion is anticipated. The yearon-year widening of the 2019 EBR reflects inter alia the continued ramping-up of capital expenditure
under the National Development Plan 2018-2027 (NDP) and a €0.5 billion contribution from the
Exchequer to the Rainy Day Fund (RDF), albeit partially offset elsewhere on the Exchequer account.

So, the increase in capital expenditure will rely on Exchequer borrowing. I thought a Rainy Day Fund was about saving for bad times but it seems that we are borrowing for the rainy day!

http://www.budget.gov.ie/Budgets/2019/Documents/Budget_2019_Economic_and_Fiscal_Outlook_E.pdf


#466

Ireland has €205bn ‘mountain of debt’, committee hears

Ireland has a “mountain of debt” that currently stands at €205 billion, some four times higher than it was in the 2000s, the Chief Executive of the National Treasury Management Agency (NTMA) has said.

Conor O’Kelly told the Public Accounts Committee that Ireland has paid €33bn in interest the national debt in the last five years, and €60bn in the last decade.

He has cautioned that “Ireland is not in a good position” when it comes to our national debt.

On a positive note, he welcomed Christine Lagarde’s nomination as President of the ECB, as she is “considered to be a dovish” and the markets have already reacted positively to news of her impending appointment. He said: “The interest rate environment looks like it is going to remain low for the foreseeable future.”

In his opening remarks to the committee, Mr O’Kelly said: “We have paid €33bn in interest over the last five years. This interest bill is enormous. We paid €60bn in interest over the last decade. That compares to €20bn in the previous decade. That is all to do with the elevated amount of debts rather than the rate of interest which a lot of people concentrate on.”

He said that Ireland relies on foreign capital for 90% of its borrowings and he acknowledged that is “unusual” for European and global sovereigns. He said this leaves us “slightly more vulnerable than others in relation to financial markets.”

He said the interest bill has moved down from €7.5bn to €4.5bn and this has occurred because of the interest environment created by the ECB.

On Ms Lagarde’s nomination he said: "Since Christine Lagarde’s potential appointment as ECB President interest rates have fallen very dramatically further. Over the last 48 hours there has been quite a dramatic move in bond markets to yields. She is considered to be a dovish, potentially, ECB President versus some of the alternatives and the market has reacted and moved rates even lower. So the interest rate environment looks like it is going to remain low for the foreseeable future.

“Because this extraordinary low interest rate environment happened when this environment had its greatest refinancing needs and at a time where the credit rating of the country was improving, those three things came together and that environment is what allowed Ireland save so much interest.”

He said that Ireland’s gross debt has remained unchanged since the financial crisis and stands at €205bn, and that is “four times what it was in the 2000s and I describe this as a mountain of debt”.

"There is only one way to get down a mountain and is very slowly and very carefully and not take any alternative routes and not to go back up the mountain.

“We have to try and find a way to reduce this debt over time. It will only happen very slowly but we have got to stick to the path and do that because the risks to the country of having very high debt levels are the risks that any household or business would have of carrying high risk.”

He said that Ireland’s debt to Government revenue stands at 251%, one of the highest in Europe and our interest bill, even though it has come down, as a percentage of Government revenue stands at 6%. "That is still way higher than our European peers, even at today’s interests, even with savings we have had, that is where it still ranks.

"Ireland is not in a good position from a debt point of view," he said.

https://www.rte.ie/news/politics/2019/0704/1060035-national-debt/


#467

2 Things today.

  1. The NTMA got a 15 year bond off at a yield of less than 0.5% this morning, lets see how long this trend lasts if hard brexit kicks in, not that I expect one once the Tory leadership election is over. :frowning:
  2. The CSO published a ‘final’ 2018 GDP of €324 this morning which, when taken together with a GGD of €205bn at the end of 2018, indicates a revised 2018 Debt/GDP ratio of 63.3% rather than the originally cited ‘around 64%’ Not too shabby that. :slight_smile:

https://www.cso.ie/en/csolatestnews/pressreleases/2019pressreleases/prnaq119/


#468

Further proof that the bond markets are totally detached from reality. The risk of a no deal Brexit should be priced in now because the Tory leadership election has made no-deal Brexit more likely than either alternative (a negotiated Brexit or a no-Brexit). In less than four months, we might suffer the biggest macro-economic shock since WWII - worse than Lehmans - but the markets is still lending to us at almost zero interest.

What are they smoking in the bond markets if they are impressed by our Debt/GDP number?


#469

Nonetheless experts and agencies warn that the European Central Bank’s low-rate policies will not last forever and that Ireland remains more acutely exposed to shocks and a cycle of rate rises because of its elevated debt level.

Mr O’Kelly said the only sustainable way of reducing the State’s monster debt was to continually run budget surpluses and to keep a tight rein on spending.


#470

What are they smoking in the bond markets if they are impressed by our Debt/GDP number?

Its better than the alternative greek numbers…

QE has led to too much money in the system. ECB rates are negative, so banks prefer to put money into bonds which are a certain rating for regulation purposes. Irish bonds have a captive audience so long as our rating holds steady. The worry is if the rating doesn’t hold in the event of a downturn.


#471

The ECB are to buy more Irish Bonds than they have today as they need to increase their overall holdings as a % of all QE because the Irish Economy is larger as a % of the Eurozone than it was 5 years ago. Other countries will see a reduction in overall holdings at the same time.

Right now all QE holdings are €2000bn of which Irish bonds are €30bn or 1.5% of QE. This means that purchases during the Draghi QE were predicated on our being around 1.5% of the Eurozone economy back then.

So when the QE “reinvestment” cycle kicks from 2020 in the ECB will (EG) buy 10% more Irish Bonds than they will redeem, in theory anyway, for a period. As our current rates are so low I hope the ECB will hold fire and step in only if there are sudden movements upwards. IE deliberately delay the move towards the new capital key.

The threat of the ECB doing what they already said they would do should be enough to keep rates low for the next few years anyway. Nobody knows when they are to step in, precisely,

This amounts to a rather virtous overhang for now, anyway. As our own major bond sales cycle is to end by next March they might have to step in early in 2020 to smooth the waters and hold fire thereafter for a period because we will be selling no bonds for a year and a half thereafter as currently planned.


#472

Ireland’s 10 year yields went negative briefly this morning.

10-year Irish bonds, which had started the year at 1 per cent and were as high as 14 per cent at the height of the financial crisis in 2011, fell to minus 0.001 per cent in early trading on Monday.

Amazing when you consider the Brexit train wreck unfolding before our eyes. Why would the market abandon sterling but start paying our government to take money that won’t be repaid a decade?

https://www.irishtimes.com/business/markets/irish-10-year-bond-rate-dips-below-0-for-first-time-1.3977618


#473

Amazing, but Brexit (and a hard Brexit at that) seems to already be baked in to EU bond prices as a whole, with the betting being that Ireland is systemic (politically systemic - the EU needs its success story). Trump/China, though is a different story. Trade wars and trade barriers are unfriendly to those seeking new trade deals from a weak position…


#474


#475

I’ve never gotten my head properly around bonds and spreads but what I think this is telling me: The Irish government will charge me 0.01% interest per annum to loan money to it over ten years?

If this persists much longer, why is the national debt a concern - liabilities are becoming assets?

Has Switzerland actually sold any of those 50 year bonds - who would ‘buy’ an extremely long term liability? 0.19% compounded over 50 years is nearly 10% of the capital - I’d be better off using that 10% to put a safe in my house and put the rest of it in that safe.


#476

You’re right owenm. It looks like we’ve reached a permanently high plateau on Government debt globally. What could possibly go wrong?


#477

https://assets.gov.ie/24583/7ce725b34d7743d793bd98a0122d40ce.pdf

The Department of Finance has issued its third annual report on our national debt. Not much change again this year - that is to say, we haven’t reduced our enormous debt burden while the Sun was shining.

In addition to the 42,500 Euros we owe per capita, how about this off-balance sheet zinger:

pension-related obligations, estimated at €115 billion at end- 2018. This covers the estimated (present value) cost of public sector pensions for current and former staff. This liability increased by 17 per cent relative to the previous estimate (in 2012).

That’s 100 National Children’s Hospitals before the contractors went bonkers. So we’re talking serious money.


#478

Actuarial Review of the pension costs is here
https://www.gov.ie/en/publication/70acca-actuarial-review-of-public-service-pension-liabilities/


#479

Thanks. €115 billion is only in respect of public sector employess. The total liabilities, including public sector pensions, the State pension and private pension schemes is €436.3 bilion. The private sector schemes are funded to €90.8 Bn. - the rest is unfunded i.e. we hope the next generation will pay enough taxes to cover it.

https://www.cso.ie/en/releasesandpublications/ep/p-eipl/eipl2015/


#480

It’s can kicking that may eventually lead to social unrest