EU confirms that Ireland will need return to the bond markets next year

There was a tongue-in-cheek entry on here during the week on the appearance of a new category heading on the debt maturity profile webpage of the NTMA. The new heading of “Liquid assets” had a garish “Barney the Dinosaur” shading and a little fun was had at the expense of the NTMA who had inserted an asterisk after the heading “Liquid assets” but not explained what the asterisk meant. There has been a short reply from the NTMA to say that it has now removed the asterisk and that “Liquid assets” refers to “Exchequer, Deposits and CSRA [Capital Services Redemption Account] account balances”. I am still awaiting a response to a follow-up query which asks if these funds are 100% available for debt redemption and what will happen in 2012 when then the funds will be exhausted. Although the entry was an attempt at some light-hearted relief, it had a more serious edge in asking how Ireland was going to fund debt that was maturing in coming years. And lo and behold, the EU produces a document yesterday which gives us the answer – we need return to the bond markets next year, in fact in a little over 12 months.

The report “The Economic Adjustment Programme for Ireland” written by the Staff of the Directorate-General for Economic and Financial Affairs is described as an occasional paper but we can expect similar reviews in future as part of our participation in the EFSF/EFSM bailout. It seems ludicrous but this document is the first publicly available that has a serious stab at addressing how Ireland is to fund its deficit AND maturing debt in the coming years. And it seems to confirm what has been suggested on here for some time – the €85bn bailout is not enough* to fund the State to 2014 and we will need return to the debt markets earlier – 2012 according to this report which says (PDF page 41)

“The Irish government does not need to tap international bond markets until the second half of 2012, but will gradually return to the markets thereafter. Available funds allow financing fiscal needs amounting to some €30 bn until end-2011, €17 bn in 2012 and €2 bn in 2013. Underlying this are assumptions of roll-over rates of maturing long-term debt of 0% until end-2011, 20% in 2012, and 80% in 2013. A further conservative estimate underlying the programme is that the rollover of short-term debt is significantly impaired in 2011 and access to private short-term debt funding will be restored only gradually.”

The maturing debt according to the NTMA this morning is €13.679bn in 2011, €6.852bn in 2012, €7.137bn in 2013 and €12.964bn in 2014. So it would seem the return to the bond markets in 2012 might be limited. That said, recent GDP projections seem to be consistently undercutting the government’s projections. And I see nowhere a reference to financing needs at NAMA (€5bn, and I note that the NAMA website still says that “Programme details will be published in Q4 2010” in respect of what I understand to be its abandoned medium debt programme) The elephant in the room (or should that be purple dinosaur!) is the future treatment of ECB and CBI emergency liquidity assistance. We can hope that funding markets regain confidence in Irish banks but if not, will the €180bn+ overdraft from the ECB and CBI today need be turned into a term-loan and added to the bailout?

And lastly, this is a politically impartial blog but it seems that the political mantras “we are fully funded to 2014” and “we won’t need return to the bond markets until 2014” are just plain false, which has been clear on here for some time but now the EC has confirmed the need to return early to the markets for funding. Given we are in the midst of a general election campaign, perhaps we might get some constructive and better informed debate on our debt options.

* The €85bn bailout is earmarked for deficit funding (€50bn) and bank capitalisation (up to €35bn). Central Bank governor, Patrick Honohan continues to claim that the bank recapitalisations might be contained in €10bn and that €25bn of the bailout might not therefore be needed. Others have suggested that we will need more than €35bn. The current stress testing of the banks might help clarify the position. There are two main reasons on here for suggesting the €85bn is inadequate – debt redemption of some €38bn in 2011-2014 and the expected need to replace ECB and CBI ELA with State funds.