Mr. Seamus McCarthy:

As members are aware, the National Treasury Management Agency is a very complex organisation with multiple important functions that extend beyond its original and core role in managing Ireland’s national debt. This wide range of functions is reflected in the scale and detail of the annual report and of the financial statements, which were published in June. Separate financial statements are provided for the different key functions.

Chapter 15 provides an overview of the NTMA’s operations in 2020, and highlights a number of key developments in the year.

As I have already stated, the NTMA’s primary function is to manage borrowing on behalf of the State. The results of that borrowing activity are reported in the national debt account. After a long period of relative stability, Ireland’s national debt increased significantly in 2020. At the end of the year, the national debt stood at €219.5 billion. This represented a net increase of €12.75 billion, or 6%, on the end of 2019 national debt. The increase in 2020 was largely attributable to the additional funding requirements as a result of the deterioration in the public finances related to the response to the Covid-19 pandemic. While the debt level increased, the cost of servicing the national debt continued to fall in 2020, due to refinancing of the stock of debt at the prevailing low interest rates. Total debt servicing costs in 2020 amounted to €4.7 billion. This was over €500 million less than in 2019.

The financial statements of the Ireland Strategic Investment Fund, ISIF, show a reduction of €2.3 billion, or 15%, in the value of the fund’s net assets between the end of 2019 and the end of 2020. The assets were valued at €12.7 billion at the year end and were held in two portfolios: a directed investment portfolio, accounting for 31% of the net assets and a discretionary investment portfolio, accounting for 69%. The loss incurred by the fund in 2020 was due to a drop of just over €3 billion in the value of the directed portfolio, offset by an increase of just under €700 million in the net asset value of the discretionary portfolio. The fall in the value of the directed portfolio in 2020 followed a drop in value of over €1 billion in 2019. These losses were related to the fund’s shareholding in Allied Irish Banks and Bank of Ireland.

In 2020, the Minister instructed the NTMA to make a €2 billion fund available within the ISIF discretionary portfolio to support medium and large enterprises affected by the Covid-19 pandemic, through the provision of lending on a commercial basis. Known as the pandemic stabilisation and recovery fund, this facility was availed of by four businesses in 2020, to a combined value of €237 million or just under 12% of the available fund.

The financial statements of the State Claims Agency record claims awards and settlements, and related expenses, totalling €430 million in 2020. This was similar to the level of expenditure incurred in 2019. These costs are recovered by the agency from the relevant State authorities within its scope of operation. The agency’s estimate of the value of claims liabilities outstanding at the end of 2020 was €4.03 billion. This has been rising steadily over recent years. Health sector bodies accounted for 92% of the estimated outstanding liability. This includes claims related to the HSE’s CervicalCheck programme. During 2020, the HSE received notification of 100 such cases, bringing the total notifications to 234. Of these, 22 had been concluded by the end of 2020. Also during 2020, the scope of claims within the agency’s remit was expanded to include the management of potential claims against private healthcare providers assisting in the public health response to the Covid-19 pandemic and in providing acute care generally under temporary contracting arrangements.

In late 2020, the Minister directed the NTMA to transfer assets to the value of €1.5 billion from the national surplus reserve fund, also known as the "rainy day fund", to the Central Fund of the Exchequer. This amount represented the total balance on the rainy day fund, originally transferred from the ISIF in late 2019.

Members will recall the circumstances that gave rise to the creation of the Ireland Apple escrow fund in 2018, into which Apple deposited €14.3 billion. In terms of value, this fund is on the same general scale as the ISIF. The NTMA has been delegated by the Minister for Finance to carry out, on his behalf, a range of functions in respect of the escrow fund. This includes production of the annual audited financial statements of the fund, which are published separately from other NTMA accounts. In line with the conservative investment policy agreed between the NTMA and Apple representatives, the escrow fund is invested in highly-rated, euro-denominated, fixed-income securities, or held as cash and cash equivalents.

These tend to be low-yielding investments. In the current interest rate environment, some of these assets yield negative returns. As at the end of 2020, the net assets of the escrow fund were €13.984 billion. This represents a decrease of €36 million from the 2019 net assets balance of €14.02 billion. The operating costs of the fund for 2020 were €7 million.

"State savings" is the combined named applied by the NTMA to a range of Government savings products offered to savers in Ireland. Such savings include balances held in An Post deposit accounts. These are accounted for in the financial statements of the post office savings bank fund. The level of deposits by savers in their An Post accounts has been growing steadily in recent years, notwithstanding the reduced returns that can be earned due to the prevailing low-interest environment. At end 2020, total deposits by savers were €3.9 billion, up almost 15% from €3.4 billion at end 2019. The fund’s net interest income and returns on investments have fallen significantly. This is in contrast to the operating expenses incurred, which have been relatively static at approximately €28 million a year. As a result, the fund has incurred deficits each year since 2015, with the exception of 2019. The deficit for 2020 was €13.8 million. As a result, the retained earnings of the fund continued to fall in 2020, standing at just under €72 million at end 2020. This compares with a peak of €190 million in retained reserves in the fund reported at the end of 2014.