Minister for Finance Brian Cowen will borrow EUR1.85 billion to run the State next year, the first time since 2002 that the Government has had to resort to borrowing to meet its Budget 2008 commitments.
Having warned in his pre-Budget outlook statement that the economy had passed a "turning point", Mr Cowen forecasts that gross domestic product (GDP) growth will fall next year to 3 per cent from 4.75 per cent in 2007.
In addition, his Budget documents indicate he expects to borrow even more in 2009 and 2010 as growth rates moderate.
The borrowing next year will increase the national debt to 26 per cent of GDP from 25 per cent at present. "It is right and appropriate that we should run budget surpluses when the economy is performing very well," Mr Cowen said.
"It is equally right and appropriate that we borrow when the growth outlook is less favourable. "However, the move into deficit must involve productive borrowing, borrowing which will strengthen our economy for the long term."
The level of borrowing next year implies a EUR2.75 billion swing from the surplus of EUR900 million that Mr Cowen now forecasts for 2007, itself down from the EUR2.28 billion surplus that he predicted on budget day last year.
The general Government deficit is forecast to be 0.9 per cent of GDP, down from the surplus of 0.5 per cent of GDP that is now expected this year.
This measurement under the EU's Maastricht criteria reflects the Government's financial position overall.
Mr Cowen said the return to borrowing was the "appropriate response" at this time to the resources available to him.
He also said the forecast deficit was fully consistent with EU rules, which limit the allowable deficit to 3 per cent of GDP.
His Budget document indicates that measures introduced yesterday will bring the likely borrowing level to EUR2.41 billion in 2009 and EUR2.34 billion in 2010. The general Government deficit will rise to 1.1 per cent of GDP in 2009 and fall to 1 per cent in 2010, according to these calculations.
Mr Cowen said the lower growth prospects next year reflect developments in the international and domestic economies. The main domestic factor weighing on growth is the prospect of "somewhat lower output" in new housing, the Minister added.
