Even though S&P’s classification of €40bn of NAMA loans as part of the national debt prompted unprecedented protestations from the National Treasury Management Agency and Ireland’s Ministry of Finance who characterised the treatment as “flawed” the Economist has produced a projection of Irish debt over the next 5 years and has followed S&P’s classification. This results in the Economist projection that Irish national debt will be 108.8% of GDP in 2010 growing to 121.4% in 2015, a dizzying and dangerous statistic in itself.
Of course just to throw oil on the flames, S&P ignored in their observations of NAMA the €5bn additional debt that NAMA can incur in funding incomplete developments and general working capital. There was news this morning that NAMA has initiated a commercial paper programme which is guaranteed by the government to draw down this €5bn which is legislatively authorised through section 50 of the NAMA Act. If the Economist added in this €5bn we would have debt to GDP of 112%.
The brouhaha surrounding S&P’s classification of NAMA bonds/subordinated debt as part of the national debt prompted a letter from S&P to the Financial Times to explain that it was not regarding NAMA’s loans as worthless, merely that it would regard the bonds as part of national debt until such time as NAMA realised value from the loans. It is understood that this treatment is consistent with S&P’s methods in other countries.
Whether the debt to GDP is 108% or 112% and given there’s a cohort of economists and commentators that feel NAMA will make 25-50% losses (NAMA itself predicts a net present value of plus €1bn), we are clearly in a worrying situation, though as a nation we have worked our way through difficult debt levels before.
NAMA Wine Lake 