State can finance more housing despite growing debt – NTMA
The government can borrow billions more to build houses for years to come without risking state finances, according to the CEO of the Irish debt agency.
National Treasury Management Agency (NTMA) chief executive Conor O’Kelly said fears over Ireland’s growing indebtedness had been ‘overestimated’, the state still had ‘some leeway maneuver ”to take on more debt even after extraordinary borrowing levels during the pandemic.
He said the low coupons and long maturities of Ireland’s outstanding debt had “bought insurance” for the future and bond investors would look favorably on productive investments made with borrowed money.
“I reflect the market and what investors think,” said O’Kelly.
“Our point of view is that the government has time, that we have saved a lot of time. That’s not to say there isn’t risk, I just think it’s overrated considering these factors … we have plenty of time to deal with any rate hikes in the second half of the year. the decade.
The NTMA’s optimism contrasts sharply with warnings from the Irish Tax Advisory Council last month that the government’s budget planning was “loose” and lacked credibility.
The council said the government’s forecast was too dependent on keeping interest rates low and its spending promises were reminiscent of the Celtic tiger’s behavior before the crisis.
According to the NTMA mid-year activity update, Ireland’s annual interest bill will drop to less than € 3.5 billion by the end of the year, its highest level. low since 2009, despite a massive increase in the stock of debt since the start of the pandemic. .
NTMA issued € 24 billion of new bonds in 2020 to fund government pandemic support, but at a much lower price than the old debt it replaced, reducing the cost. global funding. The agency has already issued 13.25 billion euros this year.
The agency now claims that the price of all such borrowing will remain below € 4 billion a year until the middle of the decade – half the total cost at the peak of 2013 – even as overall national debt continues to rise. increase.
Finance Minister Paschal Donohoe praised the work of the NTMA for “building up a social shield” and “giving us the best possible chance for social cohesion during the pandemic”.
He said access to cheap finance would allow the government to implement more public-private partnerships (PPP), saying it pledged to spend € 10 billion a year on infrastructure up to ‘in 2025.
The National Development Finance Agency, a branch of the NTMA, provides 1,500 social housing units through a PPP structure at a financing cost of just 2% of the money borrowed to finance it, which Mr. long-term interest.
The Ireland Strategic Investment Fund, the sovereign arm of the state, also had a successful year, adding gains of over 700 million euros for a rate of return of 8.8%, well beyond 2.7% delivered by Iseq last year.
Mr O’Kelly said the level of return above the weighted average bond yield of just 0.15% this year was “a trade I would do all day.”