Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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160. To ask the Minister for Finance the impact that the recent increase in interest rates will have on the projected rise in Ireland’s debt servicing costs; and if he will make a statement on the matter. [31824/22]

Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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161. To ask the Minister for Finance if a hedging strategy has been introduced to reduce any projected rise in Ireland’s debt servicing costs; and if he will make a statement on the matter. [31825/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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I propose to take Questions Nos. 160 and 161 together.

The NTMA have informed me that Interest on Ireland’s National Debt has declined significantly in recent years. In 2021 it totalled just under €3.6bn. This is more than 50% below the peak of €7.5bn seen in the mid-part of the last decade.

However, the period of large year-on-year declines in the interest bill is now over as most of the more expensive, crisis-era issued debt has been replaced with cheaper funding.

This year, it is estimated that there will be a slight increase in the interest bill on the National Debt, to just under €3.8bn. This is the equivalent of 5% of projected tax revenue. By contrast, in 2013, this interest-to-tax revenue ratio was almost 20%.

Yields on Irish Government debt are increasing, as they are on sovereign debt around the world. This reflects the withdrawal of large-scale monetary policy support from the major Central Banks and inflation developments.

There are several factors which will help to lessen the impact of rising interest rates on Ireland’s debt servicing costs.

- The vast bulk of Ireland’s public debt is at fixed interest rates.

- The NTMA strategy of pre-funding means it holds significant cash balances. These stood at €30bn at the end of May. This is money the NTMA borrowed in the low rate environment of recent years and means there is less to borrow at higher rates in the coming years. In addition, it affords the NTMA a great deal of flexibility regarding the timing of its funding operations.

- The amount of debt the NTMA will be required to issue over the coming years will likely be lower than in the recent past. This reflects (i) the pre-funding strategy referred to above, (ii) the improving public finances, as forecast in the recent Stability Programme Update and (iii) the quite limited refinancing needs – a consequence of the NTMAs strategy of issuing longer-term debt during the period of the ECBs Quantitative Easing programmes. The NTMA has extended and smoothened the maturity profile of Irish public debt.

So far this year, the NTMA has issued €5.75bn of benchmark bonds, close to 60% of the €10bn lower bound of the bond funding range. This funding was completed at a weighted average yield of 0.76% and a weighted average maturity of 13 years.

Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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162. To ask the Minister for Finance the impact that the increase in interest rates will have on Government spending over the next two years; and if he will make a statement on the matter. [31826/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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Ireland has benefitted over the last several years from very accommodative monetary policy. This allowed the State to borrow at historically low interest rates during the pandemic to fund the necessary fiscal response. Given the current inflationary environment, this era of monetary policy is now coming to an end: in short, interest rates are rising and it will be more expensive to borrow in the future.

Given the relatively long average maturity of Irish debt, the impact of increased interest rates will not be fully felt in the short-run. As a result, we have the opportunity to mitigate the risk by acting now to restore the public finances to a sustainable path. 

Continuing to maintain elevated levels of public expenditure through borrowing will increasingly leave us exposed to future economic shocks. To address this, Government set out its medium-term budgetary strategy in the Summer Economic Statement last year. The strategy is based around an expenditure rule, whereby core expenditure growth will be kept under control through fixed ceilings linked to the trend growth rate of the economy.

Of course, this strategy was framed in a very different inflationary environment than today. This year’s Summer Economic Statement, to be published in the coming weeks, will update the parameters for discussions around Budget 2023 and will set out the budgetary stance for next year.