Dara Calleary (Mayo, Fianna Fail)
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319. To ask the Minister for Finance his plans to undertake a fiscal stress test as has been done in other jurisdictions such as the UK; the details of such a test; and if he will make a statement on the matter. [28421/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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My Department prepares and publishes a risk and sensitivity analysis around the macroeconomic and fiscal forecasts on a biannual basis. The most recent sensitivity analysis was published as part of the 2017 Stability Programme Update (SPU) and included two illustrative scenarios:

1. The impact of a 1 per cent decrease in world output

2. The impact of a 1 per cent interest rate increase

The first scenario would worsen the deficit-to-GDP ratio with the effect reaching 0.2 pp relative to baseline after five years. The second scenario would worsen the deficit-to-GDP ratio with the effect reaching 0.3 pp relative to baseline after five years. Further details on the impact of these shocks can be found in the link below.

Turning to debt developments the recently published Annual Report on Public Debt in Ireland indicates that subject to the baseline scenario of continued economic growth, Ireland’s debt-to-GDP ratio should be below the EU threshold of 60 per cent in the early part of the next decade.

However in analysing our debt sustainability, a range of hypothetical shocks are applied to this baseline position, specifically a GDP shock; an interest rate shock and an extreme scenario involving a very sharp deterioration in the GDP growth rate together with a fiscal shock. The analysis suggests that the debt-to-GDP trajectory is very sensitive to nominal output growth.

Whilst on a headline basis our debt–to-GDP ratio is suggestive of an improving debt burden, this must be treated with caution due to the distortions in our GDP level. Accordingly, ensuring continued fiscal sustainability by reducing both the outstanding debt level and burden must remain a priority. Policy must be aligned to this objective and target a balanced budget along with using windfall gains to retire debt, as is Government policy.