Ireland’s gross debt ratio set to rise further according to Bank of Ireland’s Monthly Bulletin

Ireland’s gross national debt stood at €110bn at the end of 2010, with €90bn in the form of government bonds. The net figure, which takes off cash balances, was €93bn, and it is this figure, further adjusted for liquid assets held by the National Pension Fund, which the IMF monitors as part of the current Irish Programme. The EU prefers a broader definition of sovereign debt, however, called General Government debt, and on that measure the Irish figure amounted to €148bn or 96% of GDP, with the difference largely due to the €31bn promissory notes for the state-owned banks. Ireland’s debt ratio on that definition is now above the Euro norm (85%) but not dramatically so, as most countries have seen a substantial increase in debt – Germany’s ratio has risen from 65% to 83% in the past four years, according to Bank of Ireland’s latest Bulletin which was published today, 6 May 2011.

Author of the Bulletin, Dr. Dan McLaughlin, Group Chief Economist, Bank of Ireland said: “Ireland’s debt ratio is set to rise further, however, and recent developments mean that the debt burden may now peak at a higher level than previously projected, as outlined in a revised Stability programme published recently by the Department of Finance. The Department had expected the debt ratio to rise to 99% this year and to peak at 103% in 2013, but now forecasts 111%, rising to a peak of 118%. In cash terms the debt total is forecast to end the year at €173bn, or €25bn higher than 2010, reflecting the Budget deficit and some €10bn to cover the costs of additional bank recapitalisations.

“The interest rate on the debt is also expected to be higher than initially projected and another factor underlying the change in forecast relates to the economy – the level of GDP over the next few years is now expected to be lower than previously thought, and forecasts for real economic growth have also been revised down for this year and next. The Department has halved its 2011 growth forecast to 0.8% (and as such now similar to our own 0.5%) and expects 2.5% next year, from an original 3.2%. The net result is that the General Government deficit this year is now expected to be higher than projected last December, at 10% of GDP, instead of 9.4%, with the 2012 deficit also revised up, to 8.6% from 7.3%. The latter still incorporates the €3.6bn fiscal adjustment originally envisaged so for the moment the divergence from the original plan is not producing any additional policy measures, with the deficit falling below 3% of GDP in 2015 rather than 2014. The Government has also announced its intention to produce a Jobs Initiative package later this month, but this will be budgetary neutral according to the Stability Programme update”, concluded Dr. Dan McLaughlin.

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6 May 2011

For reference:

Dr. Dan McLaughlin                                    Anne Mathews

Group Chief Economist                               Media Relations Manager

Bank of Ireland Global Markets                 Group Communications

Tel:  01 609 3221                                           Bank of Ireland

Tel: 076 623 4771 / 087 246 0358