Seán Fleming (Laois, Fianna Fail)
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144. To ask the Minister for Finance the rules in place for the utilisation of the expected surplus that NAMA will transfer to the Exchequer in or before 2020; if there are rules in place requiring this to be offset against the national debt or if it can be used for capital investment or other purposes; if there are specific EUROSTAT rules in place to cover an organisation like NAMA requiring that the NAMA surplus be specifically used for debt reduction; and if he will make a statement on the matter. [36138/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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Currently NAMA expects to redeem 100% of its guaranteed senior debt by the end of 2017 and expects to redeem its subordinated debt in March 2020.  NAMA will focus on completing its ongoing deleveraging, its Dublin Docklands SDZ and residential funding programmes in the interim period to 2020. NAMA's 2016 Annual Report, which provides further insight into the Agency's expectations regarding these activities, was laid before the Oireachtas on the 1st June 2017 and is also available on NAMA's website via:.  As the Deputy will be aware, it is through the successful completion of these objectives that NAMA currently projects a surplus in the region of €3bn to be returned to the State once it completes it work.

Section 60(2) of the NAMA Act 2009 states that NAMA may use surplus funds to redeem and cancel its debt.  Surplus funds may only be returned to the Central Fund once NAMA's debt has been redeemed in full.

As has been discussed with Eurostat, from an accounting perspective, once the senior debt, subordinated debt, and private investors have been repaid then NAMA (the Agency), which is in Government, would be the sole shareholder and, as such, NAMA (the SPV) would then become classified into the Government sector, having no effect on the General Government Balance.  This is expected to occur in 2020, no later than the time at which the private shareholders have been fully compensated.  At this point in time NAMA will have no debt.

It will be a decision for the Government as to how any surplus returned by NAMA will be utilised within the fiscal rules. It should further be noted that at this point, according to most recent estimates, there will be in the order of €3.4bn net fiscal space available to the Government. 

While Ireland's economy is growing and debt is on a downward trajectory, the debt level is still comparably high and caution must be exercised due to the potential of rollover risk should interest rates increase. We are a small and very open economy in a world that has more risks than usual. Compliance with the fiscal rules underpins the Government’s objective of maintaining sound public finances. Furthermore, any additional expenditure outside of the limits set by the expenditure benchmark could result in a deviation under the fiscal rules which, if the State does not take effective action within a relevant deadline, could result in the European Commission applying an interest bearing deposit. Additionally, aside from financial penalties there could be a potential for adverse debt market outcomes and reduced confidence in the Irish economy.

It has always been the Government's intention to use such receipts from the resolution of the financial sector crisis to pay down our debt and help reduce our debt servicing costs. Given the uncertainty around the specific timing of or the amount that will be realised, such an estimate has not been included our debt forecasts.

Debt reduction, underpinned by the Government's lower gross general government debt target of 55% of GDP, will increase the resilience of the public finances to deal with any potential shocks which may emerge.

Seán Fleming (Laois, Fianna Fail)
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145. To ask the Minister for Finance the planning that has taken place to date regarding the potential use of the expected NAMA surplus which will be transferred to the State, in view of the substantial amount of funding involved; the time taken to prepare for the best use of these funds; if some of it can be used for infrastructure, capital or other purposes, in view of the fact that NAMA may complete its work early and this surplus may be available sooner than 2020; and if he will make a statement on the matter. [36139/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy will be aware that NAMA outlined in its 2016 Annual Report that the Agency expects to return a surplus to the State in the region of €3bn, subject to prevailing market conditions, when it completes its work. It is important to recognise that this is a projected surplus - it will only materialise after NAMA’s debt is fully repaid and NAMA’s ongoing work is completed. NAMA held cash reserves of circa €1.6 billion at the end of 2016 and requires these reserves to fund its ongoing operating costs and to progress its ongoing deleveraging, Dublin Docklands SDZ and residential funding programmes in the interim period to 2020. It is only through the successful completion of these objectives that NAMA anticipates that the estimated surplus will be available for return to the State by 2020.

NAMA currently has €500m (2%) of its original €30.2bn senior debt and €1.6bn of subordinated debt remaining outstanding. NAMA is structured in such a way that the debt it issued to purchase the acquired loans was not treated as part of Ireland’s General Government Debt under European accounting rules. NAMA Group entities are therefore 51% privately owned and operate to return dividends to its shareholders. The return to the private investors is an annual dividend linked to the Irish Government Bond yield at the time of dividend declaration, with the potential of an additional 10% (capped) of the contributed capital sum. As per section 60(2) of the NAMA Act 2009, NAMA may, following consultation with the Minister for Finance, use surplus funds to redeem and cancel its debt and “transfer any surplus funds remaining after that redemption to the Central Fund”. In practice, this means that surplus funds may only be returned to the Central Fund once all NAMA's obligations have been repaid in full and in order of seniority:

1. Government guaranteed senior bonds

2. Subordinated debt

3. Private investors

NAMA currently expects to redeem the remaining government guaranteed senior debt by the end of 2017, its subordinated debt of €1.6bn at its call date of March 2020 and repay its private investors thereafter. NAMA have also advised that the Residential and Docklands SDZ funding programmes are unlikely to be completed before 2020. Thus, I do not currently envisage a situation where NAMA will complete its work early as the Deputy suggests.

As has been discussed with Eurostat, from an accounting perspective, once the senior debt, subordinated debt, and private investors have been repaid then NAMA (the Agency), which is in Government, would be the sole shareholder and, as such, NAMA (the SPV) would then become classified into the Government sector, having no effect on the General Government Balance. This is expected to occur in 2020, no later than the time at which the private shareholders have been fully compensated. At this point in time NAMA will have no debt.

It will be a decision for the Government as to how any surplus returned by NAMA will be utilised or distributed within the fiscal rules once it is available. It has always been the current Government's intention to utilise receipts from the resolution of the financial sector crisis to pay down our debt and help reduce the cost of the banking stabilisation measures and reduce our debt servicing costs. The fiscal rules are designed to promote budgetary discipline and underpin sustainable economic growth. While Ireland's economy is growing and debt is on a downward trajectory, the debt level is still comparably high and caution must be exercised due to the potential of rollover risk should interest rates increase. We are a small and very open economy in a world that has more risks than usual. Compliance with the fiscal rules underpins the Government’s objective of maintaining sound public finances.