Not that I am looking for it, but the data just jumps out to shout "All this malarky about Ireland's Government debt sustainability being ahead of all in the 'periphery' is just bollocks". And indeed it is.
Recall that the last bastion of 'our debt is just fine' brigade used to be the rarely cited metric of Net Debt (debt less cash reserves and disposable assets available to the State). Recall that our 'assets' - largely a pile of shares in AIB and Ptsb et al - is officially valued at long-term economic value (not current value, which would be way, way lower than LTEV). And now, behold Ireland's relative position in terms of net debt to GDP ratio, courtesy of the IMF WEO projections for 2013 published this month:
So: third worst in the euro area and worse than that for Italy. And, incidentally, it is expected to be third worst in 2014 as well.
Good thing Benda & Loonan are not running around saying 'Ireland is not Italy', yet...
Recall that the last bastion of 'our debt is just fine' brigade used to be the rarely cited metric of Net Debt (debt less cash reserves and disposable assets available to the State). Recall that our 'assets' - largely a pile of shares in AIB and Ptsb et al - is officially valued at long-term economic value (not current value, which would be way, way lower than LTEV). And now, behold Ireland's relative position in terms of net debt to GDP ratio, courtesy of the IMF WEO projections for 2013 published this month:
So: third worst in the euro area and worse than that for Italy. And, incidentally, it is expected to be third worst in 2014 as well.
Good thing Benda & Loonan are not running around saying 'Ireland is not Italy', yet...
Debt sustainability is not a static concept that can be derived from a cross-sectional snapshot. Debt sustainability is defined in terms of a non-increasing debt ratio through time.
ReplyDeleteThe IMF's baseline scenario is that Irish government net debt will peak at 108% of GDP in 2014 and decline thereafter. Over the four years subsequent to that the IMF project that it will have fallen to 96.4% of GDP. Although, the peak is very high this decline is indicative of sustainability (though what actual unfolds may be different).
Also the difference between net debt and gross debt does not include banking assets. The difference is calculated by subtracting the asset equivalents of items that are included as liabilities in gross debt calculation.
These are:
AF2. Currency and Deposits
AF33. Loans, and
AF4. Securities other than shares.
The Irish government has a small amount of loans and debt securities held as assets. These include the loan assets of the Housing Finance Agency and around €350 million of rescue loans provided to Greece in 2010. The NPRF likely holds some debt securities. These though do not account for most of the difference between the gross and net debt measures.
The major difference between the two is "currency and deposits". The IMF estimates that at the end of 2013 Exchequer cash balances will be €20 billion. This is 12.1% of GDP and accounts for more than three-quarters of the difference between the 2013 gross (122.5% of GDP) and net (106.8% of GDP) debt figures.
Assets counted as AF5. Shares and other equity are are not used in the net debt calculation reported by the IMF. The value of the banking shares (ordinary and preference) held by the government is a movable feast but any non-zero number on disposal would further reduce net debt (assuming we get actual money in exchange for them!).
It is impossible to say what these assets are worth but if, say, 10% of GDP is realised over the next five years that would mean a net debt of around 85% of GDP in 2018. Disposals of other assets (semi-states etc.) could reduce that further if undertaken.
Not great, but not catastrophic either. There are a multitude of reasons why Ireland's 10-year yield fell below 3.5% today.
Hi Constantin,
ReplyDeleteWhat would happen to the money supply if all of the Irish sovereign debt was fully paid off?
Where does the money come from to pay off the interest on the principle amount?
Thanks,
Kevin
Sensible Money
Seamus, I'm disappointed I share your Surname. You should think of running for office with one of the Fine parties, either will do, you'd fit right in.
ReplyDeleteSeamus, good points raised. Agree the story is more complex than simple levels today imply. So it is for other countries in the sample. Simple fact I highlight is that even by net metric we are not outside the peripheral group.
ReplyDelete