Brian O'Shea (Waterford, Labour)
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Question 38: To ask the Minister for Finance his views on the recent spike in the cost of credit default swaps on Irish sovereign debt; his further views on whether Ireland could lose its AAA sovereign rating at some point over the coming two years; his further views on the expected higher cost of State borrowing Ireland will face in 2009; and if he will make a statement on the matter. [45353/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The National Treasury Management Agency have advised me that the current aversion to risk in global markets has led to an increase in the cost of insuring exposure to all counterparties, and the associated increase in credit spreads has more to do with the general sentiment in the credit markets than the financial position of individual issuers. Irish government debt has not been immune to this trend. However, the market for Irish government credit default swaps is small and prices quoted are volatile. Also, it should be noted that such spreads represent a cost to the investor and do not directly affect the cost of debt to the Exchequer.

The interest rates at which the State can borrow are historically low. However, as a result of the increased borrowing requirement in 2008 and 2009, the interest element of the servicing of the national debt has been forecast in Budget 2009 to increase from €1,641 million in 2008 to €3,295 million in 2009. The 2009 estimate represents around 2% of GNP and this is in line with the average over the last 10 years.

Ireland has the top AAA rating from all the major rating agencies. In assessing overall credit worthiness, consideration has to be given to the overall level of government debt. The government debt ratio was forecast in Budget 2009 to be around 36% of GDP at end-2008. This ratio does not take into the account the assets of the National Pensions Reserve Fund or the significant cash balances that the NTMA has built up for the Exchequer. When the assets of the NPRF are netted off, the projected net indebtedness position for end-2008, as set out in Budget 2009, is in the region of 25% of GDP. The projected EU average for end 2008 is around 60% of GDP. However, given the continuous deterioration in the public finances, as evidenced in the end-November Exchequer returns, and the downside risks to growth next year, it is inevitable that our borrowing will rise in the years ahead. The Government is concerned at such a development and is giving priority to stabilising and restoring the public finances to a sustainable position, particularly by bringing the current budget back to balance as soon as possible.