Finance | Addressing Ireland’s debt as a percentage of GDP, GNP, and GNI

To ask the Minister for Finance if he will indicate this country’s total debt as a percentage of GDP, GNP and GNI; and if he will make a statement on the matter.

REPLY

At the time of Budget 2023, my Department forecast the total level of public debt at end-2022 to be €226 billion, a level equal to  45 per cent of GDP, 60 per cent of GNP or 86 per cent of GNI*. Modified Gross National Income or GNI* is considered the most reliable measure of economic activity in Ireland as it removes globalisation activity providing a better measure of the domestic economy.

The estimate of €226 billion is approximately €23 billion higher than end-2019 levels, reflecting the significant fiscal supports needed throughout the Covid-19 pandemic. At over €44,000 for every person in the country, Ireland has one the highest per capita debt burdens in the world.

The Annual Report on Public Debt in Ireland 2022 published last month provides an analysis of current debt developments in Ireland and explores the sustainability of Ireland’s debt in the context of the current macroeconomic environment.

An important consideration, when assessing the sustainability of public debt, is the underlying structure of the debt, and the State’s ability to make interest payments. This report shows that the structure of Irish public debt insulates the public finances in the short-term, given that the majority of debt is locked in at fixed rates and with relatively long maturities.

Despite this however, the recent rapid increase in inflation across advanced economies, as well as the associated shift in policy interest rates, highlights once again how quickly economic conditions can change.  

From a public finances perspective, the shift in the interest rate environment will have tangible implications into the future, and the re-financing of existing debt over the medium-term will lead to increased debt servicing costs.

Additionally, Ireland’s narrow tax base, in particular the over-reliance on corporation tax receipts as a source of revenue, is a significant vulnerability. A shock to corporation tax receipts – or the income taxes that are associated with the multinational sector activity that generates these corporate revenue streams – could result in a very large deficit.

Furthermore, the public finances remain exposed to an intensification of the inflationary impact of the war in Ukraine, as well as any fall-out from the ICT sector shock. Looking further ahead, long-term structural changes, such as the fiscal impact of shifting demographics and climate change, also pose significant challenges for the public finances

These challenges highlight the need to pursue prudent budgetary policies which provide the fiscal space for Government to respond to unforeseen events and to prepare for the long term structural changes on the horizon.