Terence Flanagan (Dublin North East, Fine Gael)
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Question 57: To ask the Minister for Finance if he will respond to correspondence (details supplied) regarding funding from the troika; and if he will make a statement on the matter. [33876/11]

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy will be aware when the Programme of Financial Support was initially agreed in late 2010, the average interest rate on the €67.5 billion available to drawdown from the external sources was estimated to be 5.82% on the basis of market rates at the time of the agreement. The average life of the borrowings, which will involve a combination of longer and shorter dated maturities, under each of the sources was initially set at 7.5 years. The Euro Area Heads of State or Government (HOSG) agreed on 21 July 2011 to reduce the cost of the European Financial Stability Facility (EFSF) to lending rates equivalent to those of the Balance of Payments facility close to, without going below, the EFSF funding cost.

In addition, further amendments to the EFSF framework have removed the interest rate margin on EFSF funds and were incorporated into a new legal agreement on the 27th of October in which the interest rate margin is now defined as zero. The agreement incorporates a guarantee commitment fee of 0.1% per annum and a service fee to cover the cost of operations of the EFSF. It is now estimated that the overall net reduction in Ireland's EFSF interest rate margin and other changes will be in the range of 2.7% to 2.8%. It should be noted that the EFSF's cost of funds depends on the interest rate it pays for its market issuance when raising funds for programme countries.

In October, the EU Council of Ministers approved an EU Commission proposal to eliminate the margin of 2.925% on the EFSM facility. This change was incorporated into an amendment to the existing legal agreement on 28th of October and the margin is now defined as zero. This will apply to EFSM borrowings back to the date upon which they were issued. The actual cost of funding depends on the prevailing market rates at the time of each drawdown.

Lengthening of maturities provides benefits in terms of phasing of loans and ensuring that the profile of redemptions is more orderly – avoiding as far as possible exceptionally large amounts in particular years. By contrast, money borrowed at longer maturities is generally more expensive. However, on balance, savings arising from maturity extension are significant though complex to calculate.

Given these changes, figures provided by the NTMA show that the total savings on the original EU facilities with an average life of 7.5 years is some €9 billion, or approximately 5.7% of 2011 estimated GDP. This reduces the annual repayment on these loans by an average of €1.2 billion per year over 7.5 years or by an approximate average margin reduction of 2.80 percentage points.

In addition, the cost of our IMF loans will reduce as a result of recent and forthcoming increases in our IMF quota. The NTMA has calculated the overall benefit of this interest rate reduction at some €1.9 billion. Some €30 million of this arises in 2012. In the case of the IMF loans, the estimated savings take account of a quota increase which will not come into effect before autumn 2012 at the earliest. These expected savings may change either upwards or downwards in the light of future quota revisions.

For 2012, the interest rate margin reductions in the EU and bilateral loans amount to some €875 million. When the impact of the IMF changes are taken into account, the savings amount to some €900 million on a General Government basis or a reduction of our interest repayment in 2012 of 0.57% of the current 2012 GDP estimate.

Question No. 58 answered with Question No. 52.