Tuesday, 12 July 2011
Department of Finance
Question 115: To ask the Minister for Finance the profit that the IMF will make on the loan facility extended to Ireland as part of the EU-IMF programme assuming a full draw down of the moneys available and that the moneys are held for an average of 7.5 years; and if he will make a statement on the matter. [19907/11]
The IMF loans to Ireland under the EU/IMF Programme come from the quota subscriptions of its member countries and a new arrangement whereby certain countries and institutions provide a back-stop facility. This is in sharp contrast to the EFSF/EFSM which access the general capital markets for funds through the sale of marketable bonds when funding opportunities present themselves.
Under the IMF's Extended Fund Facility, the official name of the fund used, interest is due quarterly at the IMF's standard interest rate. The interest rate is the IMF's basic rate of charge plus surcharges which are based on the size of the loan relative to the country's IMF quota. An amount of 1% is charged over the SDR interest rate to give the basic rate of charge. In addition a level-based surcharge of 2% for amounts over 300% of the borrower's quota is added. This surcharge is modified after three years such that a further 1% is added. This added surcharge is referred to as the time-based surcharge. In addition to the interest charge there is a once off up front handling fee of 0.5% for all disbursements. Repayments in respect of each disbursement are made by way of 12 equal semi-annual payments that commence 41⁄2 years after disbursement.
The SDR interest rate is reset weekly and is based on a weighted average of the three-month Eurepo rate, three-month Japanese Treasury Discount bills, three-month UK Treasury bills, and three-month US Treasury bills. The current SDR interest rate is 0.58% but could change significantly over the life of the programme.
I am informed by the IMF that its surcharges are automatically placed in its reserves to protect the value of assets that member countries place with it. It says that the security of these assets means that the IMF's cost of funds is low, being a weighted average of 3-month Treasury bill rates for the US, Japan, and UK, and the 3-month eurepo rate. This low cost of funds is passed on to borrowing countries as a lower interest rate. As of July 11, the interest rate due on Fund credit is 1.6% on the first 300 percent of quota, and 3.6% on amounts above 300 percent of quota.
I understand from the NTMA that the total amount of interest and surcharges over the basic SDR rate due under the extended arrangement, assuming all disbursements are made as scheduled and all repayments are also made as scheduled (with the last repayment in 2023), is estimated at SDR 4,115 million, which is equivalent to €4637 million based on the July 11 SDR/€ exchange rate. Unlike the EFSF and EFSM, it is possible to pay the IMF borrowing back early without penalty, should circumstances allow at some point in the future, thereby reducing the cost of borrowing.
Question 116: To ask the Minister for Finance the average blended interest rate on EFSM loans based on the interest rates being charged on draw downs to date; and if he will make a statement on the matter. [19909/11]
Question 117: To ask the Minister for Finance his views that the average interest rate charged on EFSM loans will exceed the 5.7% indicated by the former Minister for Finance and the National Treasury Management Agency in December 2010; and if he will make a statement on the matter. [19910/11]
I propose to take Questions Nos. 116 and 117 together.
In November, the EU Commission agreed that the methodology used to calculate the cost of funds from the EFSM would be designed so as to generate a cost of funds from the EFSM at a rate similar to the cost of IMF funds. At the time it was calculated that the IMF floating rate translated to a Euro fixed 7.5 year rate of 5.7%. This 5.7% interest rate was calculated using market rates in November. This figure was indicative only, based on market conditions at that time, and not a commitment.
The gap between the interest charged to Ireland on its EFSM borrowings and the 5.7% is explained by the cost of funds in the bond market. The financial assistance programme envisages a weighted average maturity of 7.5 years for EFSM loans to Ireland and the EFSM achieves this by issuing bonds of different maturities. In general, bonds with longer maturities will have higher yields, or costs of funds. This has been reflected in the borrowing to date.
To date, Ireland's nominal borrowings from the European Financial Stabilisation Mechanism under the EU/IMF Programme amount to €11.4 billion. The weighted average interest on the EFSM borrowings to date is 5.91% with a weighted average maturity of 6.87 years. Details of these loans, including the nominal interest rates for the EFSM, which is the rate used to calculate the amount of interest due on the loans for Ireland, as supplied by the NTMA to my Department, are set out in the table.
|Lender||Nominal Loan amount||Amount Disbursed||Date of Draw down||Maturityfrom date of receipt.||Interest Rate used to calculate ongoing payments|
|(Borrowing Cost including margin but excluding fees)|
|EFSM||€5.00 billion||€4.973 billion||12-Jan-11||4 years 11 months||5.425%|
|€3.40 billion||€3.39 billion||24-Mar-11||7 years||6.175%|
|€3.00 billion||€2.986 billion||31-May-11||10 years||6.425%|
|Overall Totals / Weighted Averages||€11.4 billion||€11.35 billion||n/a||6.87 years||5.91% **This rate is based on the coupon of the bonds issued by the EFSM to finance the loan, plus the margin of 2.925%.|
Notwithstanding the data supplied, I am advised by the NTMA that the appropriate interest rate to use to assess the overall cost of a particular loan is the all-in cost of borrowing or yield. On this basis the overall EFSM weighted average interest rate, including all costs on loans drawn down to date is calculated at 5.99%.