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Finance | Ireland’s current international borrowing position

To ask the Minister for Finance the extent to which Ireland remains in a safe position in terms of borrowing to meet the current international crisis; and if he will make a statement on the matter.

While public debt increased sharply during the Covid-19 pandemic, the strides that had been made in the years prior to the crisis, alongside the low interest rate environment, meant that the State could borrow sustainably to mitigate the worst economic impacts of the necessary public health restrictions. Similarly, Ireland’s quick rebound in economic growth following the pandemic, accompanied by strong tax revenue performance, will allow the Government to respond appropriately in the year ahead to the current energy crisis.

A key determinant of fiscal sustainability is, of course, the State’s ability to make repayments on the debt that it has borrowed.  An environment of increasing interest rates has now commenced following a sustained period of low and even negative interest rates, and the European Central Bank has signalled that this will continue as long as inflation rates remain elevated. This means that interest rates will undoubtedly increase on any national debt issued in the coming years and on current national debt on variable interest rates.

However, Ireland’s starting position with regards to current financing costs is relatively favourable. The effective interest rate on the national debt is very low, with nearly three quarters of Ireland’s debt at an interest rate of 2 per cent or lower, the bulk of which is, importantly, at fixed rates. Additionally, the vast bulk of Irish debt is in the form of Government bonds, which tend to have a relatively long maturity profile, and around half of outstanding debt instruments are owned by domestic residents, providing additional insulation against adverse shocks.

Notwithstanding this favourable financing position, excessive borrowing at a time of increasing rates will erode the progress made in recent years with regards to fiscal sustainability. The debt ratio will have to be kept on a downward trajectory if we are to tackle the medium term challenges of the digital and climate transitions alongside the fiscal costs of an ageing population.




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