Dr. Kieran McQuinn:

They make a number of interesting points. One of the points they make, which is very much related to that, is the kind of target we should be setting. This ties into the discussion about the fiscal rules and fiscal policy and whether we should be targeting a specific debt-GDP ratio. For instance, should we aim for a debt-GDP ratio of 30%, 35% or 40%? Once we hit that rate, we could then adjust our budgetary position in response to that. For instance, in May if we are able to hit a specific debt-GDP ratio, we could still possibly engage in some degree of borrowing. I wrote a paper last summer that looked at that particular issue in some detail, assessing what we could do in an Irish context. Could we specifically target a certain debt-GDP ratio and then, given the likely growth rate in the economy and the likely outlook for sovereign debt costs, could we possibly borrow and still meet that target? The evidence suggests we could.

These are very interesting and important fiscal policy decisions we need to think about. If we did not have the awful Ukraine situation, we would be saying quite conclusively that the fiscal metrics are improving quite strongly in the Irish economy. Even given the significant cost outlay associated with the pandemic, the debt-GDP ratio and debt-GNI* ratio will be lower at the end of this year than they were in 2019. There has been a downward trajectory as far as those debt-GDP ratios have been concerned ever since the financial crisis.

One of the issues we were flagging was whether we will just continually run down the debt-GDP ratio over the coming years. Will we just try to get it as low as we can, similar to where it was prior to the financial crisis, or do we set a target of, for example, 35% or 40% and then, once we are clearly hitting that target, we will be able to generate surplus funds we can use for investment purposes in areas such as housing and climate change.

That is an important debate. There is considerable debate even internationally as to where, for instance, the fiscal rules could go as a potential option. It is an important point as far as the future conduct of fiscal policy is concerned.