Written answers

Tuesday, 1 December 2009

Department of Finance

Debt Servicing Costs

12:00 pm

Photo of Ciarán CuffeCiarán Cuffe (Dún Laoghaire, Green Party)
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Question 101: To ask the Minister for Finance the difference, in relation to Government borrowing on international bond markets, in cost to the Exchequer for debt servicing on an annual basis resulting from differing bond interest rates between borrowing based on his current plan to get budget deficit to 3% of GDP by 2014 and borrowing based on a ten year time frame to achieve this; and if he will make a statement on the matter. [44028/09]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The table below sets out the projections for debt servicing costs for the period 2009-2013 as contained in the Supplementary Budget. On the basis of the Supplementary Budget estimates, it is forecast that about one-fifth of our tax revenue would be required to service the national debt by 2013. In this context, it is important to note that debt servicing costs have a first call on resources; therefore an increase in these costs would have a significant impact on the level of resources that would be available to meet other needs.

Supplementary Budget forecast Debt Servicing Costs 2009-2013:

Sinking Fund* and other debt management expenses0.
Total Debt Service Cost3.

Rounding may affect totals

*The sinking fund provision is a transfer from the current account of the Exchequer to the capital account of the Exchequer – it has no impact on the overall Exchequer balance - and represents an element of paying off the principal.

The National Treasury Management Agency (NTMA) have advised that, as is usual, the above estimates for debt servicing costs were prepared on the basis of the prevailing market conditions for Irish Government bonds at the time of the Supplementary Budget. As with other budgetary estimates, these forecasts are being reviewed as part of the preparatory process in respect of Budget 2010 and the revised estimates will be published on Budget day, 9 December.

At end-2008 the national debt was some €50 billion and, by end-2009 is estimated to stand at approximately €76 billion. If no action was taken to stabilise the public finances it is forecast that this would result in Exchequer deficits of approximately €25 billion a year and the national debt level would rise to about €175 billion by end-2013.

In the absence of corrective adjustments, and based on technical estimates taking into account current debt dynamics it is considered likely that debt servicing costs could be in the region of 25% to 30% of tax revenue by 2013. If less benign assumptions were made concerning the market reaction to not addressing our mounting debt, or delaying correction over a ten year period, it is reasonable that the proportion of resources going on servicing the debt would rise further, thus leaving less for vital services. Bridging the gap between income and expenditure through ongoing increased borrowing is not a viable solution in the medium to long-term. We must make the necessary adjustments now to stabilise the deficit and Budget 2010 is being framed in this context.


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