Dáil debates

Tuesday, 4 April 2017

5:15 pm

Photo of Tommy BroughanTommy Broughan (Dublin Bay North, Independent)
Link to this: Individually | In context | Oireachtas source

40. To ask the Minister for Finance if his Department has held discussions recently with the NTMA in relation to the national debt repayments which will fall due in 2018 to 2020; his views on the fact that a quarter of Ireland's national debt is due for refinancing in that period; the way this will impact the fiscal position; and if he will make a statement on the matter. [16418/17]

Photo of Tommy BroughanTommy Broughan (Dublin Bay North, Independent)
Link to this: Individually | In context | Oireachtas source

We had a very sobering account of our national debt from the chief executive of the National Treasury Management Agency, NTMA, Mr. Conor O'Kelly, and his head of funding, Mr. Frank O'Connor in the Committee on Budgetary Oversight a few weeks ago. They answered concerns that had been put to me about the refinancing of our debt, particularly in late 2019 and early 2020, when these chimney stacks of debt will have to refinanced. Is the Minister happy with the strategy of the NTMA? Does he think that perhaps they should be lending for longer at the really low rates that we have at the moment? Is it a strategy that the Department of Finance is happy with?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The Department of Finance is in regular contact with officials in the NTMA on a wide range of topics, including the management of the national debt.

Over the period 2018 to 2020, there are five benchmark bonds due to mature. The total balance outstanding on these bonds is currently just over €42 billion. In addition, the majority of the bilateral loans received from the UK, Sweden and Denmark as part of the EU-IMF programme also mature during that period. This brings the total medium-term to long-term debt refinancing requirement over that three year period to approximately €46.5 billion.

The Deputy should be aware that although there are two loans from the European financial stabilisation mechanism, EFSM, totalling €3.9 billion, with contractual maturity dates in 2018, these are due to be refinanced by the European Stability Mechanism, ESM, in light of the maturity extensions granted to EFSM and European Financial Stability Facility, EFSF, loans in 2013. It is not expected that Ireland will have to refinance any EFSM loans before 2027.

The five benchmark bonds maturing over the 2018 to 2020 period carry annual coupons ranging from 4.4% to 5.9%. The expectation is that these bonds can be refinanced at lower coupons based on the current interest rate outlook. The current interest expenditure forecast reflects this expectation. For the period of 2018 to 2020, refinancing requirements have already been significantly reduced in recent years.  Following the early repayments to the IMF of December 2014 and the first quarter of 2015 and their replacement with cheaper long-term market-based funding, the liability to the IMF in that three-year period has been reduced by approximately €11.5 billion. The maturity extensions granted to EFSF and EFSM loans in 2013 and bilateral bond switching have also helped to reduce the refinancing requirements over that period by over €7 billion. The NTMA has also built up significant cash balances as part of its pre-funding strategy. These are expected to be of the order of €10 billion at the end of 2017.  These transactions leave the Exchequer in a healthy position to fund the 2018 to 2020 refinancing requirement.

Photo of Tommy BroughanTommy Broughan (Dublin Bay North, Independent)
Link to this: Individually | In context | Oireachtas source

Is it really a healthy position? The Minister refers to the ESM and EFSF loans. Are they not really irrelevant at this stage, given that we were allowed to refinance at face value rather than the net present value, NPV? Is the reality not that over 34% of our marketable debt requires refinancing in a very tight period of June 2019 to October 2020?

In addition, I am informed that there is a requirement on the Central Bank to dispose of the floating rate note, FRN, instruments acquired on the nationalisation of Anglo-Irish Bank, which will accelerate from €500 million per annum to €1 billion per annum by 2019. Those repurchases have been made by the NTMA and the stock cancelled at prices up to and above 150% of the nominal value.

The key point is that these contracted repurchases add significantly to the amount of debt requiring refinancing in a highly concentrated timescale and, it is fair to say, the percentage requiring refinancing has been lowered by a tiny amount over the last year, given the NTMA's execution on request by market makers of switches. It seems to be always acting reactively and not proactively. Has the NTMA sheltered behind the belief that lower coupons on maturing debt is the same as having efficient debt management from the start? It has watched ten year yields more than treble, from 0.3% to over 0.9% over the last six month, while 30 year yields have risen from 1.3% to 2%, yet it has done nothing to take advantage of that. Is there the possibility of a perfect storm if Brexit goes badly wrong and we do not have a free trade area, along with other things that might happen to the country in late 2019? It will be an issue for the Deputy's successor after a general election, but nonetheless it will be a great issue for our country.

5:25 pm

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I am quite sanguine about the NTMA's policy. I have discussed the situation with the NTMA quite frequently. One of the strategies of the NTMA is to smooth the profile of debt repayments so that the peaks are reduced and as a consequences the values are increased, if one thinks about it in graph terms. It is doing that very successfully and has managed that very well over recent years.

Our national debt is still very high. Clearly the size of the debt is a matter of concern but I am assured that the NTMA does not expect any difficulty whatsoever in refinancing the debt that becomes due in the three years the Deputy has inquired about, and it also expects to do it at much lower interest rates, or at a lower coupon, to use the term that they use.

Photo of Tommy BroughanTommy Broughan (Dublin Bay North, Independent)
Link to this: Individually | In context | Oireachtas source

Refinancing costs with the historic coupons on bonds sold when Ireland had already entered into the crisis and then hoping that they will still be lower in two or three years' time is not a strategy. That is the core point that I am raising today. Is it the stated strategy of the NTMA that long-term rates are unlikely to raise above current levels by the crucial period of June 2019 to October 2020? Dr. O'Kelly and his colleague gave us detailed information at the Committee for Budgetary Oversight about the efforts they have made this year and last year and especially since 2015 to refinance the outstanding debt. This is a vast amount of debt overhanging our country. Should we not have a much more proactive policy from the NTMA? Are we just hoping that when quantitative easing ends in December, the concerns about the debt will be inflated away? Is there the possibility that the Minister is leaving his successor in late 2019 and early 2020 with a very serious fiscal problem?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The NTMA tells me that there are a number of variables that impact on interest rates, including yields in other markets at the time, the demand for the relevant maturity at a point in time, the economic and fiscal position of the borrower, credit ratings and the size of issues, among others. The NTMA does not disclose the interest rates at which it could potentially issue debt as to do so could negatively impact the agency in terms of raising funds for the Exchequer at the most competitive rates possible. The five benchmark bonds maturing over the period 2018-20 carry annual coupons ranging from 4.4% to 5.9%, and the current expectation of the NTMA is that these bonds can be refinanced at lower coupons. The NTMA does not share the kind of anxiety expressed by the Deputy. It thinks it is a very strong position to refinance the debt in question at a lower interest rate than what prevails at present.