The Government should spend the money created by future Budget surpluses on the State's infrastructure, rather than paying off the national debt, the chief executive of the National Treasury Management Agency (NTMA) has said.
Dr Michael Somers told the Dail's Committee of Public Accounts yesterday that faced with a choice of paying off the national debt or addressing the "infrastructural deficit", he would favour the latter.
He pointed to a recent study by IBEC which said that £14 billion would be needed to finance fully all the State's infrastructural needs.
He said the problem of road congestion was just one example of an "infrastructural gap". This was his "personal view" and the decision was one for the Minister for Finance, Mr McCreevy. He was responding to a question from the chair of the committee, Mr Jim Mitchell (FG), who said that Mr McCreevy was currently facing this choice.
Dr Somers said he favoured capital spending over current spending, because with capital spending "you end up with an asset at the end of it".
He told the committee that the national debt currently stood at £28.5 billion, down from £32.3 billion at the end of last year.
He was appearing before the committee to explain why debtservice costs rose in 1996 by £134 million when the level of the debt went down.
Dr Somers said several factors had a material impact on debtservice costs in 1996, including the settlement of foreign exchange liabilities which involved incremental costs of £138 million.
He added that there was also an increase in the interest on the debt and extra payments were made to the small savings reserve, which is there to guarantee savings certificates, savings bonds and national instalment savings.
Dr Somers said EMU would mean a reduction of between £500 million and £600 million in the cost of servicing the national debt annually, mainly caused by the elimination of foreign exchange risk.
He said the main worry about EMU for the NTMA was that with 40 per cent of the Republic's trade still with Britain, a dramatically fluctuating sterling "could pull us this way and that". The "safety valve" of devaluation would be gone.
He added that the NTMA was "uneasy about the few hundred millions" of the debt in Japanese yen. The agency is seeking to reduce its exposure to volatile currencies like the yen and will eventually be borrowing most of its money in euros, he said.
In response to a question from Mr Mitchell, Dr Somers said the agency would continue to borrow much of the debt on a fixed basis as long-term money rates were very attractive.
