Written answers

Thursday, 25 October 2012

Photo of Shane RossShane Ross (Dublin South, Independent)
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To ask the Minister for Finance the macro-economic stability and debt sustainability analyses, if any, that have been undertaken in which an assumption is that the promissory note is not repaid; and if he will make a statement on the matter. [47011/12]

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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To ask the Minister for Finance the macro economic stability and debt sustainability analyses if any that have been undertaken in which an assumption is that the promissory note is not repaid; and if he will make a statement on the matter. [47085/12]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 58 and 61 together.

My Department undertakes and publishes macro-economic analysis on a frequent basis, including the Stability Programme Update published in April of this year and the forthcoming Medium Term Fiscal Statement. As part of this on-going and wide-ranging work, my Department examines the issue of debt sustainability. Indeed, section 4.5 of the November 2011 Medium-Term Fiscal Statement deals exclusively with an analysis of debt sustainability, outlining alternative trajectories for the debt/GDP ratio corresponding to different assumptions about the gap between the interest rate and the growth rate. Our current debt/GDP ratio is very high and stabilizing and subsequently reducing it is one of the Government’s key policy objectives. In that regard, the end-June euro area summit and more subsequent development signalling that the situation of the Irish financial sector would be examined.

In addition to my Department's own internal analysis, as part of the seventh review of the financial assistance programme, which took place in July 2012, the IMF undertook an analysis of the possible effects on the debt-sustainability of the Irish sovereign of various modes of financing could be. For illustrative purposes, scenarios considered included consideration of the promissory notes. The Fund concluded that the improvement in Ireland’s debt dynamics would depend on the modalities and the quantum under consideration. On-going discussions with the Troika are considering all options for the restructuring of the promissory notes in terms of the source of funding, the duration of the notes, the interest rate applicable etc. As the Deputy would expect our analysis is on-going and is regularly updated in the context of these discussions.

Photo of Shane RossShane Ross (Dublin South, Independent)
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To ask the Minister for Finance the analyses that are being undertaken in view of the IMF WEO note on multipliers to establish the short term multiplier for Government spending here; and if he will make a statement on the matter. [47012/12]

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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To ask the Minister for Finance the analyses being done in the view of the International Monetary Fund World Economic Outlook note on multipliers to establish the short term multiplier for Government spending here; and if he will make a statement on the matter. [47086/12]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 59 and 62 together.

At the outset, I want to stress that the Government’s key objective of supporting economic growth that delivers jobs remains to the forefront in framing fiscal and economic policy. Fiscal consolidation reduces the fiscal deficit and increases investor confidence which in turn lowers the cost of borrowing and helps to put public debt on a declining path. Having said that I fully recognise that there will be a short term reduction in output before these medium term benefits are realised. So it is a difficult balancing act between the need for consolidation on the one hand and the need to support the emerging recovery on the other. There is, I think it is fair to say, an acknowledgement among many commentators that we in Government are getting this balance right.

The recent IMF World Economic Outlook suggests that the average size of fiscal multipliers (the effect of consolidation on growth) across countries may have been underestimated in recent years. More recently, senior IMF staff tasked with monitoring developments in Ireland pointed to the multiplicity of factors at play in acting as a dampener on growth and acknowledged that there was no convincing evidence that the fiscal multiplier for Ireland was underestimated compared with that assumed under the programme.

Ireland is a small, open economy with imports accounting for over three quarters of GDP. This means that a considerable amount of consolidation leaks out through reduced demand in countries we import from. We can already see this in the Balance of Payments figure, which shows the current account moving from a deficit of -5.7% of GDP in 2008 to a surplus of 1.1% in 2011. Fiscal multipliers vary according to the fiscal instruments used, and the impact on aggregate demand as a result of expenditure changes can differ from tax changes. I would reiterate the Government’s cognisance of this and its commitment to implementing consolidation in as growth-friendly a manner as possible.

In order to correct our excessive deficit and minimise the cost to the taxpayer through sustaining investor confidence and keeping the cost of borrowing as low as possible, Ireland is committed to implementing further consolidation over the next three years. Evidence of the rewards associated with this approach is already visible through the lowering of bond yields since early summer and the successful return of the NTMA to the debt market.

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