The head of the National Treasury Management Agency (NTMA), the organisation which borrows money on behalf of the State, said today the country's deficit will likely to rise because of the banks bailout.
John Corrigan, the NTMA's chief executive, said the €25 billion promised to Anglo Irish Bank Corp. and Irish Nationwide Building Society may be classed as part of the country's deficit this year.
Mr Corrigan's comments come after the ESRI said earlier this week that including recapitalisation of the two financial institutions would bring the country's deficit to almost 20 per cent. This all but guarantees that Ireland will run the largest deficit in the 27-member EU for the second consecutive year.
Mr Corrigan said the exchequer was fully funded through to the first quarter of 2011 having raised more than 80 per cent of its planned 20 billion euro of borrowings this year
The debt agency also announced plans to sell bonds worth between €1 billion and €1.5 billion at its next regular monthly auction on Tuesday.
The premium investors demand to hold 10-year Irish bonds versus benchmark German Bunds widened about 2 bps on the day to 296 bps.
Responding to Mr Corrigan's comments, Minister for Finance Brian Lenihan said: "clearly we need to focus in the public debate for the rest of the year on how the Irish State itself can be put on a sustainable basis."
"We know what the restrictions on borrowing are. That means the focus of debate has to be on taxation and expenditure and the correct balance of taxation and expenditure that sustains confidence in the economy and ensure that the services delivered by the State do represent value for money for those who pay for them.”
Additional reporting: Agencies