Back in September and October, 2010 before the IMF came to town and Minister for Finance Brian Lenihan was talking about us being fully funded to the middle of 2011, and following the alarm that greeted the NTMA’s decision to withdraw from bond auctions there were some confusion over how exactly we were fully funded to “the middle of 2011” when we had substantial debt redemption, a still shaky banking sector whose capital demands were going in one direction only and a crippling deficit with limited political will to balance the books. Indeed just before the IMF deal was announced there was a piece on here which answered Minister’s Lenihan challenge to “work it out for ourselves” the bailout needed from the IMF. Included in that estimate on here of over €200bn was the redemption of maturing national debt of €38bn in 2011-2014. The issue of debt maturity and redemption didn’t go away. Well finally it looks as if the mystery of how we’re going to fund these redemptions is going to be explained by the NTMA.
According to the latest NTMA debt maturity profile shown above, we will have nearly €14bn of national debt maturing this year comprising €4.585bn of bonds, €6.977bn of short term debt (understood to be Treasury Bills) and €1.083bn of retail debt and €1.035bn of other debt. And it would seem that we will be using something called “Liquid Assets *” to fund redemptions. This new category of “Liquid Assets *” is not explained by the NTMA and funnily enough is shaded a Barney-the-Dinosaur shade of purple on the NTMA website. How fitting perhaps that a colour more associated with a fantasy toddlers character is what we will use to repay maturing debts.
A query has been sent to the NTMA asking for an explanation of “Liquid Assets *”. This entry will be updated with any response but I leave you with what might be the NTMA’s communication to bondholders and others whose instruments mature in 2011 and who might be expecting payment from the Irish state (given that €44bn of the bailout is needed for the deficit, €5bn for NAMA and €35bn for the banks, though €25bn is claimed to be a contingency for the banks, there wouldn’t seem to be any funds left for debt redemption)
UPDATE: 29th May, 2011. Minister for Transport (not Finance), Leo Varadkar is reported today to be suggesting that Ireland will need an additional bailout so as to be able to fund maturing debt, that is bonds and treasury bills that were issued for a fixed period by the Irish state and which are now coming due for repayment. Thankfully not all of the €35bn bailout from the IMF/EU which had been earmarked for the banks will be needed – the stress tests in March 2011 identified a €24bn need and although we still haven’t seen the results of the Anglo and INBS stress tests, we are assured by Minister Noonan that they won’t show anything “untoward” which presumably means they won’t need additional funding; that being the case there may be €11bn of a “saving”, possibly more if bondholders accept a haircut on their bonds, and some of that might be diverted to rolling over maturing debt. It probably won’t be enough however as the maturity profile shown above illustrates.
[…] Namawinelake has a post today on this topic: you can read it here. […]
Dear Namawinelake,
The liquid assets refer to Balances of €15,709m held in Departmental Funds + other Accounts, including the Exchequer A/c as of 31/12/2010. This has been known for some time and is on the NTMA website.
Click to access Funding_Q4_2010.pdf
I like the majority of your articles but you have sat on the fence regarding what government debt will be in 2014. You have thrown about numbers suggesting that they might or might not be included. Can you outline exactly what you think government debt will be in 2014 so we know where you stand.
Thanks Paul for that explanation but doesn’t this mean we have a problem because wasn’t this funding that you describe earmarked to be contributed to the €85bn bailout (specifically to the €17.5bn element).
As regards government debt in 2014, for the time being I will go with the government’s own deficit projections (€43bn 2011-2014) though the balance of opinion seems to be that GDP growth will be less than official projections. I believe the Promissory notes will need be drawn down sooner rather than later and not in an even 10-years but frankly this is all tinkering around the edges. The real question is what will happen with ECB operations that see €100bn in our banks at present, how long can this emergency funding continue (it started in Sept 2008 in earnest) and will part of that end up on the national debt? So general govt debt of €148bn in 2010 + €43bn deficit 2011-2014 + additional capital for banks (€35bn earmarked of which €25bn is described as a contingency) + debt redemption nil (rollover) + NAMA €45bn (€40bn bonds including pyt for sub-€20m exposures and €5bn development debt) + swapping of ECB/CBI ELA for national debt x,
So €271bn + x for ECB/CBI ELA swap for general government debt
Obviously NAMA will have some value as will ELA and we start off with some funds in the NTMA/NPRF so the net will be less than that , but I would have said €220bn as a rough ballpark.
I also assumed it was the 17.5bn of our contribution to the deal (12.5bn from the NPRF and the 5bn in cash balances)
The thing that I am curious about is that the envisage the whole 17.5bn being spent this year.
I knew we were putting up 10bn of our own money for recapitalisations/deleveraging BUT:
-there have been subbie deals done with AIB, BOI and theres currently an offer ongoing with EBS. Not to mention the fact ILandP should be able to raise their capital themselves.
So…if the 8bn we allocated purely to recapitalisation won’t be fully needed then I guess we are still going to find a way to spend it, perhaps by using it on the deficit and reduce our 2011 borrowing at 5.8%.
[…] liability that is brewing up behind all this, Namawinelake also has some handy rough workings, in a comment to one of his own posts: The real question is what will happen with ECB operations that see €100bn in our banks at […]