Ossian Smyth (Dún Laoghaire, Green Party) | Oireachtas source

I thank all the Deputies who have contributed to this debate. I appreciate the Opposition's support for this Bill. Although it is described as technical, it does provide for what will be very practical and useful funds for poverty reduction and disaster relief.

I will address some of the questions raised, starting with those of Deputy Berry, the most recent contributor. His first question was on whether the NAB would be funded by the Exchequer. As I understand it, it is an investment from the Central Bank and will bear interest. It does not involve any cost to the Exchequer. Trust funds, however, are grants and would be expected to be given for earthquake relief or hurricane relief, for example. There is no repayment; they are cash grants. Provision has to be made within the Bill because there is a cost to the Exchequer associated with what the total amount of money could be.

The next question was on our input into the conditionality, how it is set and whether it is done by the Minister for Finance or officials. I shall give a more complete and better-informed answer on Committee Stage, rather than trying to answer the question right now.

Deputy Berry's next question was on whether the Central Bank could provide a briefing for spokespeople. I see no reason why not. I will contact the Central Bank and ask whether it will brief Opposition spokespeople. Although this Bill is just addressing the NABs and trust funds, this is an opportunity to discuss the operation of the IMF in general. Of course, the IMF is an emotive subject because the IMF was involved in a programme in Ireland in its not-very-distant history. It is not the case that the IMF arrives at one's door; it has to be invited in. When you have nowhere else to turn, you write to the IMF and invite it to come to your country, and then you form a programme with it.

Several Deputies raised the question of conditionality. A country applies to the IMF, in its capacity as a lender of last resort, for funding and agrees a programme with it. Sometimes the conditionality is controversial, and that is what leads to Deputy Berry's question about how it is formed. Conditionality is a core part of the agreement. It has always been. Under its articles of agreement, the IMF is required to establish adequate safeguards for the use of its resources in order to ensure loans to member countries are repaid as they fall due. This ensures resources will be available to other members in need. The safeguards include policy conditionality, implying that a country's government and the IMF must agree together a programme of economic policies before the fund provides a loan to the country. Essentially, conditionality serves two purposes. In the first instance, it helps countries solve balance-of-payments problems without resorting to measures that are harmful to national or international prosperity.At the same time, it safeguards IMF resources by ensuring the country's balance of payments will be strong enough to permit it to repay the loan, thereby protecting the fund's limited resources. While I recognise the significant challenges that conditionality can pose in the short term, as we can recall from our recent experience, the overarching goal of these measures is always to restore or maintain balance-of-payments viability and macroeconomic stability while setting the stage for sustained high-quality growth.

Deputy Shortall asked about the exchange rate gap between SDRs and the euro. In other words, if we say in this legislation that a certain maximum amount of money can be spent on the trust funds and NABs, where that sum is denominated in euro but we actually pay in SDRs, with an exchange rate movement between the two, how do we cover the risk? That is a technical question. As Deputy Shortall said, the ECB had raised a question about this when looking at draft legislation. The answer to the question is that the Central Bank of Ireland, acting as Ireland's fiscal agent to the IMF, will take on the financial risk associated with making payments on behalf of the State in response to a call under the NAB decision. However, given the financial independence required of the Eurosystem and national central banks under Article 130 of the Treaty on the Functioning of the European Union, pursuant to which member states may not put their national central banks in a position in which they have insufficient financial resources to carry out their Eurosystem-related tasks, the Central Bank of Ireland requires a ministerial guarantee to participate in the NAB. This ministerial guarantee will cover all financial risk, including credit risk in the unlikely event that the IMF fails to repay, either in full or in part, the amounts owed, and exchange-rate risk arising from the fluctuations in the euro–SDR exchange rate. Exchange-rate risk would occur in the event that the euro appreciated over the term of the loan against the SDR, meaning a decline in the value of the principal amount and interest repayments under SDR terms relative to the euro amount on the Central Bank's balance sheet. Notwithstanding the two circumstances outlined, the purpose of the guarantee is to provide full compensation to the Central Bank for any shortfall. The specifics of the guarantee have been set out in a template letter, agreed in advance by the Department of Finance and the Central Bank of Ireland.

Deputy Berry and possibly others raised debt forgiveness. It was asked why the IMF requires a repayment from people in need. As Members can see, the trust funds do not require repayment; they are purely grants. In the case of a loan made by the IMF, if the members decide to forgive the debt, the members concerned can forgo repayment. They can always do that if they feel it is the wisest move. In this regard, we have only to consider the fund's comprehensive response to Covid-19, with financing totalling €173 billion provided to 93 members to support their pandemic response and recovery, as well as vital debt relief made available to 29 vulnerable low-income members.

As we move into the next phase of the crisis, the IMF continues to provide additional financing, technical assistance and policy advice to help countries recover and to build back better.

The IMF has reacted quickly to the devastating developments in Ukraine, approving emergency financing of $1.4 billion on 9 March and disbursing these resources to Ukrainian people that same day. As some Deputies may be aware, the IMF managing director has publicly committed to providing additional assistance to Ukraine. Fund staff have also been in daily contact with the Ukrainian authorities and has worked with its ministry of finance and central bank on crisis management measures to allow for the continuous functioning of the Ukrainian economy. Furthermore, the IMF also stands ready to provide support for Ukraine's neighbours. For example, the fund is request considering a request from Moldova to increase the financial assistance available under existing extended credit facility-extended fund facility programme.

To reiterate the intention behind the Bill, it is to allow Ireland to play our part in fortifying the fund and securing its ability to respond to future crises. It also provides another avenue for Ireland to fulfil its obligations as a strong economy, allowing us to channel critical support to those countries that need it most. The Bill, once enacted, will put in place a credit arrangement for up to €2.37 billion to be provided by the Central Bank, which may be drawn upon by the fund subject to an activation of the NAB and a specific call on the activated NAB by the IMF. This is a loan arrangement. Any money provided by the Central Bank in response to a call on the NAB will be repaid in full by the IMF. Furthermore, the fund will pay a daily interest rate on the sum which will be paid to the Central Bank on a quarterly basis.

Similarly, with regard to potential grant contributions to IMF trust funds, I do not underestimate the significance of committing to future payments up to an aggregate total of €325 million. Again, it is important to reiterate that, unlike the NAB, contributions to IMF trust funds will be in the form of grants with no expectation that the State will be ever be repaid. The IMF uses trust funds in order to deliver a sustained and targeted impact for a specific objective. For example, the poverty reduction and growth trust, PRGT, was used extensively during the pandemic to provide concessional loans at zero interest rates to low income countries to support economic recovery and the response to Covid-19.

Beyond the pandemic context, the catastrophe containment and relief trust, CCRT, allows the IMF to join international debt relief efforts for poor countries hit by the most catastrophic of natural disasters. The IMF perspective trust fund, the resilience and sustainability trust, will provide affordable long-term financing to support countries as they address macro critical longer-term structural challenges such as climate change, pandemic preparedness and digitisation. I commend the Bill to the House.

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