Mr. Conor O'Kelly:

I thank the Acting Chairman and the committee members for the opportunity to address the committee and assist it in any way we can. I am joined by Mr. Frank O'Connor, who is head of funding and debt management at the NTMA.

I do not intend to read out my opening statement. If it is okay with the Acting Chairman, I will refer to some of the key points that I reference in it. We have provided some slides that we use when we are in front of investors around the world talking about the Irish bond market which we thought might be a useful way of drawing out some of the key points that might be of interest.

The key starting point is that our debt, as is well known, is quite elevated and is still standing at €200 billion. That is four times what it was in 2007. Although our debt-to-GDP ratio is showing an improving trend and our economic fundamentals are good, nonetheless some of the other key ratios that investors look at do not show Ireland in quite as favourable a light. I will reference some of those.

As I say, the economic fundamentals are exceptionally good and have been for a number of years. A particular focus for investors in the bond market is our fiscal position and our primary surplus. The fact that the household budget is in primary surplus means that, essentially, our debt levels are stable. That is an important dynamic and an important statistic for investors. Our credit ratings have also improved and we are now rated in the A category by all of the rating agencies.

In terms of investor demand for Irish bonds, we have moved clearly from being considered a peripheral credit to being what we now consider to be a semi-core credit and we are now trading very much in line with France and Belgium as opposed to some of the peripheral countries when we trade in the market place. That has been not only talked about in researched reports, but mentioned in the Financial Timesa couple of days ago. That has been the case for the past 18 months or so, and it reflects our strongly improving credit performance. That has been tested in volatile market conditions and even when negative news hits the markets, Ireland has tended to trade closely to France and Belgium as a semi-core.

Investor demand for Irish bonds has widened and our investor base has widened. That is particularly important for Ireland. Ireland is very dependent on overseas investors for its debt. Ninety per cent of our bonds are owned by overseas investors and that puts us in quite a vulnerable position versus other countries which have higher rates of domestic savings and participation in the bond market. One of the few ways we can mitigate that is to diversify the investor base by region and by type, and we attempt to do so. That has been happening. Our investor base, I am glad to say, has been broadening significantly.

In terms of what we have done in the market in the past couple of years, since 2015 we have issued €27 billion in total at an average yield of 1.3% and an average maturity of 16 years. Some of the key highlights of that was the refinancing of the €18 billion of IMF debt on which we produced an interest saving of approximately €1.5 billion for taxpayers over the period of four years. Probably just as important was the replacement of the maturity of that debt. It was averaging four-year maturity as IMF loans and those were refinanced with maturities closer to 19 years. By extending the maturity profile, that has also helped to improve the position. We issued Ireland's first 30-year bond during that period and last year we also issued a 100-year bond at a yield of 2.35%, what was known as a "centenary bond". The fact that we were able to do that is a reflection of Ireland's credit but also, and probably more so, a reflection of the extraordinary interest rate environment that we live in, with quantitative easing and the impact that has had on interest rate markets.

This year, we have announced to the market that we will issue between €9 and €13 billion as a target for funding for the year. We issued a €4 billion 20-year note at a yield of 1.73% earlier this year. We additionally raised, through a dual-auction last month, another €1.25 billion. We have another auction tomorrow where we will again announce a dual-auction of ten-year notes and 30-year notes, and the size has yet to be determined. This dual-auction is something that we have not done for quite a few years but we are finding it very effective, both for accessing pockets of liquidity along the yield curve and smoothing out the benchmark yield curve.

What about the interest bill, which is probably most of interest to this committee and many others? The total interest annual interest bill is €7 billion at present. That is down from €7.5 billion and trending towards €6 billion. We would be very confident about that number. As to whether it ultimately could go lower and go to €5 billion, that will be dependent on interest rate conditions and markets, particularly over the next three years.

The next three years are an important period for Ireland because there is €52 billion in maturing debt that needs to be refinanced between October 2017 and October 2020. To put that in context, that maturing debt in the next three years is in excess of the total national debt that existed in 2007. The interest rate environment, while we are refinancing that debt during that period, will be critical in determining the long-term overall cost of the national debt in terms of an interest bill.

The team is on the road constantly. Ireland is a very small market, a very small country. It is less than 2% of the European bond markets. It is less than 0.5% of the global bond markets. Even somebody who is an index fund manager does not necessarily have to buy a market such as Ireland. It is a planes, trains and automobiles job. The NTMA is on the road and always has been. That is a core part of the business. Whether we have a lot to issue or a little to issue, we need to keep the credit story in front of investors and ensure that they are fully aware of the dynamics.

I thought I might go through some of the slides to show the committee what we talk about to investors when we are on the road. We tried to pick out some of the slides that we thought might be of most interest to the committee.

The first slide provides a potted history of Ireland's bond yield. New investors, in particular, need to be able to put the market in context. Obviously, that history has been pretty extraordinary and I will point to three of the dates we have highlighted to illustrate this. In July 2011 Irish ten-year bond yields were at 14%, while Irish two-year bond yields were at 24%. That was at the time we were entering the programme and essentially being shut out of the bond markets. The next date of note is December 2013 when, following some tough policy decisions and renegotiation of margins, extensions and maturities by the troika, Ireland was gradually able to re-enter the bond markets without a precautionary credit line. The last date to point to is January 2015. We can see the considerable impact the announcement by Mr. Mario Draghi of the ECB's quantitative easing programme had on the interest rate markets.

I wish to talk briefly about quantitative easing. We spoke about the interest bill being €7 billion annually. In 2014 the official forecast by the Department of Finance for the interest bill today was €10 billion. We are now at a figure €3 billion lower than what was forecast only three years ago and on our way to it being €4 billion less. That is an annual saving against what was forecast in 2013. How has that happened or from where has the value come? Obviously, Ireland has been a material beneficiary of the quantitative easing environment. It is a disproportionately high borrower and a highly indebted nation; therefore, we have been a disproportionate beneficiary of quantitative easing. Various policy decisions and the improvements in our credit story are obviously major factors too, but we are talking about savings of €3 billion to €4 billion against what the Department forecast only a very short time ago. There have been significant savings for Ireland in that regard.

The next slide in our presentation gives members an idea of where we are vis-à-visthe rating agencies. It is worth noting that we are now in the single A category for all investors. That is important because many conservative investors around the world need the sovereign to be in the A category in order for them to be able to invest. An A rating opens up additional pools of capital to us. Moody's, the last rating agency to bring us into that category, rated Ireland as sub-investment grade as recently as January 2014. We have, therefore, made quite a move in a very short period.

The next slide illustrates the gross national debt composition. I will not go into detail on it now, but I will be happy to answer questions about it later.

The next slide deals with the evolution of the national debt. We are stabilising at a point just above €200 billion. That is the forecast for the next few years. However, I cannot emphasise enough the extent to which our stock of debt increased from 2007 up until today. It is four times larger than it was in 2007. There are very few countries in the world the national debt of which increased by that multiple during the same period. That is the real legacy of the crisis and that debt position still leaves us quite vulnerable.

The next slide refers to some of the key fundamentals in terms of fiscal out-performance that have encouraged investors, as well as the rating agencies, to re-rate our bonds. Investors have actually been ahead of the rating agencies in re-rating Ireland in the semi-core from the periphery. In terms of the general Government balance and the budget deficit, we have outperformed the European targets every year for the last six years. As members know, we are on target to close that gap and go into surplus by 2019. The next graph emphasises the primary surplus, which is the Government's budget without interest costs and a figure on which investors focus. Debt as a percentage of GDP is a figure to which the market refers very often and our position in that regard has been improving significantly and smoothly owing to our stronger growth levels. It is driven by GDP growth rather than by the debt changing; therefore, it does not change the stock of debt as such. It just changes the position relative to GDP. Obviously, when we had the distortion of GDP, it caused people to look for other indicators. We have the GNI* and the working group chaired by Governor Lane which will be very helpful in that regard. That said, investors have always looked at a number of other indicators. At what are investors looking? They can see that our stock of debt is high and need to determine our ability to repay them and refinance our debt. They are the data for which they are looking. Obviously, GDP growth is a key indicator in that context.

The next slide contains a number of tables in which Ireland's position does not look so good, on a relative basis, in terms of debt-to-GDP. Members should focus on the two middle tables which show Government debt to Government revenue and interest to Government revenue. As only Greece and Portugal rank ahead of Ireland, we still have a long way to go, being the third worst performing country in Europe in both categories. The tables are a better indicator of our vulnerability. From our point of view, we want to stress the fact that Ireland is still a very indebted country. While the interest rate environment has allowed us to refinance and lower our interest bill, the stock of debt is still very high. It is at a very significant level. We must bear this in mind.

The next slide shows the actual interest bill. The point I made about the forecast is illustrated in the graph in red in terms of where we were forecasted to be and where we are now. The interest bill is beginning to decline and headed towards €6 billion. On the back of the refinancing and fundraising done to date, we can be confident that we will get to the figure of €6 billion, but whether it will be any lower will depend on the interest rate environment in the key period of the next three years.

I now invite my colleague, Mr. Frank O'Connor, to go through the next three or four slides. He is the person on the road with the team, so to speak, and better equipped than me to talk members through the next section of our presentation.