NTMA CEO ‘not greatly worried’ about burden of Covid borrowings

National Treasury Management Agency (NTMA) chief executive Conor O'Kelly says he is not really worried that taxpayers will be saddled with a spike in interest costs when billions of euro of Covid-related borrowings need to be refinanced in future.

"When people ask me about the burden on future generations, I'm saying: 'What burden?'" Mr O'Kelly said during an online conference hosted by Dublin-based Kianda Technologies on Wednesday, noting that governments are borrowing at ultra-low rates as a result of European Central Bank (ECB) monetary policy.

Risks

While Mr O’Kelly said countries do face interest-rate risks in the future as they refinance money borrowed to deal with the coronavirus pandemic, he highlighted that the ECB and other policymakers will ensure that the market environment “will be benign”.

"Obviously we carry risk into the future in terms of refinancing that debt," he said. "But we're not on our own here, we're in with everybody else, not just in Europe, but right across the world. There's been extraordinary pandemic spending, and institutional policies will make sure, in my opinion, that the environment for that refinancing, when it takes place, will be benign. So, it's not something that worries me greatly."

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Mr O'Kelly noted that the Government's annual interest bill has fallen from €7.5 billion a year in 2012, when then ECB president Mario Draghi made his famous "whatever it takes" speech to save the euro, to about €4 billion currently. "In my office, I've got a picture of Mario Draghi up on the wall. That must make me the only Irish public servant with a picture of an Italian politician up on the wall."

The NTMA borrowed €24 billion on the international bond markets last year at a record-low average rate of 0.2 per cent, and is on course to raise up to €20 billion of cheap debt in 2021 to deal with the fallout from the pandemic. The Government estimates that public debt will rise by €35 billion – or 17 per cent – over the space of two years, to end 2021 at a level of €239 billion.

GDP

Mr O’Kelly said that the economy is “flying”, led by multinationals in the State, even though the retail, travel and tourism sectors have been hurt by the crisis. “But the rest of the economy is flying,” he said.

However, although the Department of Finance forecasts that gross domestic product (GDP) will expand by 4.5 per cent this year, underlying domestic demand is only predicted to grow by 2.5 per cent. The labour market has borne the brunt of the pandemic, with the unemployment rate projected to average 16.3 per cent this year.

Minister for Finance Paschal Donohoe has also warned that corporate tax revenue will fall as a result of international tax reforms in the works. Still, Mr O'Kelly said that the Republic will continue to attract foreign direct investment as long as "nothing too dramatic" emerges.