Brian Lenihan Jnr (Dublin West, Fianna Fail)

The National Treasury Management Agency has advised that Ireland has a net financing need of €24.5 billion in 2009. This is based on the forecast Exchequer borrowing requirement of €18 billion set out in the addendum to the stability programme update, the refinancing of a €5 billion bond that matures in April and a sum of €1.4 billion in respect of the frontloading of the Exchequer contribution for 2010 for the National Pensions Reserve Fund relating to the bank recapitalisation programme. The NTMA estimates that the associated debt servicing cost in 2009 will be €4.5 billion and has advised that it considers the revisions to the debt service estimate included in the addendum are adequate in the context of the current market conditions.

The NTMA has also advised that the main reasons for the increase in the forecast cost of servicing the national debt for 2009 over previous years are the increase in the Exchequer borrowing requirement and the higher interest rates prevailing on government bonds. While the increase in borrowing is the major factor, the current elevated yields on government bonds also contribute to increased debt service costs. Many factors underlie these yields, including global factors, which are affecting all euro sovereign borrowers benchmarked to the German bond, and national specific factors.

The NTMA intends to raise funds on the long-term government bond market through a combination of auctions and syndicated loans. It successfully raised a 5-year €6 billion bond at a coupon of 4% in early January. Ireland is rated as AAA by the credit rating agencies. In addition, we have a relatively low debt level. The general government debt to GDP ratio was 41% at the end of 2008, which is well below the EU average of 60%. At the end of 2008, when account was taken of the cash balances held by the NTMA and the value of the NPRF and other funds managed by the agency, the debt to GDP ratio was reduced to approximately 20% of GDP.

Our favourable debt level will remain below the EU and euro area averages over the coming years. While our debt level will increase in the coming years, our low starting point gives us the leeway to target a restoration of balance to the public finances in the next year. In this way, we can avoid placing too great a shock upon the system as we restore order to the public finances and reposition our economy.

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