Ireland’s year-end budget deficit came in higher than the outgoing Government’s official forecast due to an unexpected ruling by Eurostat, the EU statistical agency.
The 2015 figure was still low enough to ensure Dublin will no longer be subjected to stringent fiscal oversight from Brussels for running an excessive deficit.
However, Eurostat’s ruling led to the State recording a general government deficit of 2.3 per cent of GDP. The figure was almost 1 percentage point higher than foreseen by the Government, which was proceeding on the basis that the surge a surge in tax receipts and GDP growth last year would bring the deficit to 1.3 per cent.
At issue in Eurostat’s ruling was its formal classification of a one-off share transaction in the nationalised Allied Irish Banks.
Contrary to expectations in Dublin, the Luxembourg-based organisation designated the conversion last year of AIB preference shares to ordinary shares as a general government expenditure. The redemption of the preference shares by AIB yielded €1.6 billion for the State.
The year-end debt-to-GDP ratio came in lower than anticipated at 94 per cent, down from 107.5 per cent in 2014.
“The outturn data and future forecasts demonstrate that the excessive deficit has been corrected in a durable manner,” said the Department of Finance.
“ This performance together with the forecast reduction in the deficit in 2016 to 1.1 per cent of GDP means that Ireland should exit the Excessive Deficit Procedure as expected.”
The Government was obliged to comply with a 2010 European recommendationto bring the deficit to a maximum of 2.9 per cent by the end of 2015. The 2.4 per cent of deficit means this condition was met on time, clearing the way for Ireland to exit Europe’s “excessive deficit procedure” in coming weeks.
Member state which are subject to procedure face a tougher form of fiscal scrutiny by the authorities in Brussels, so one particular set of oversight rules will no longer apply to Ireland. Still, the strengthening of the euro zone rulebook during the sovereign debt crisis means Dublin will be obliged to comply with another set of onerous targets.
“The underlying general government deficit of 1.3 per cent of GDP and the reduction in the debt to GDP ratio to under 94 per cent demonstrates strongly the continued improvement in Ireland‘s public finances,” said Minister for Finance Michael Noonan.
“Indeed, the strength of the performance is such that impact of the treatment of the AIB preference share transaction by Eurostat leaves the headline deficit at 2.3 per cent,” he added.
“This is still well within the excessive deficit procedure limit of 2.9 per cent that Ireland had to achieve last year. The one-off nature of the transaction affecting the 2015 figures has no further implications and my Department is forecasting a deficit of 1.1 per cent of GDP for 2016.”
The Department said the end-2015 debt figure was in line with the euro zone average, adding that the forecast for 2016 was a “further reduction” in the ratio to just under 89 per cent of GDP.
This figures and the projection of 1.1 per cent deficit reflects a “provisional forecast” by the Department. The forecast will be updated in the “stability programme update”, which is a formal submission the State must make to Brussels by the end of this month.
The document typically embraces an update on the fiscal situation six months since the budget, as well a new economic forecast for the current year and an initial forecast for the following year. However, the filing is likely to be delayed due to prolonged political wrangling over the formation of the next government.
