National Debt of Ireland

Comptroller and Auditor General Report for presentation to the Houses of the Oireachtas

National Debt of Ireland

I have audited the financial statements of the National Debt of Ireland for the year ended 31 December 2014 under the National Treasury Management Agency Act 1990. The financial statements, which have been prepared under the accounting policies set out therein, comprise the accounting policies, the service of debt statement, the national debt statement, the national debt cash flow statement, the statement of movement in national debt and the related notes. The financial statements have been prepared in the form prescribed under section 12 of the Act and on the basis set out in paragraph (b) of the accounting policies.

Responsibilities of the National Treasury Management Agency

The National Treasury Management Agency (the Agency) is responsible for the preparation of the financial statements, for ensuring that they properly present the balance outstanding on the national debt at year end and the debt service cost for the year, and for ensuring the regularity of transactions.

Responsibilities of the Comptroller and Auditor General

My responsibility is to audit the financial statements and report on them in accordance with applicable law. My audit is conducted by reference to the special considerations which attach to State bodies in relation to their management and operation.

My audit is carried out in accordance with the International Standards on Auditing (UK and Ireland) and in compliance with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements, sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of

• whether the accounting policies are appropriate to the circumstances, and have been consistently applied and adequately disclosed
• the reasonableness of significant accounting estimates made in the preparation of the financial statements, and
• the overall presentation of the financial statements.

I also seek to obtain evidence about the regularity of financial transactions in the course of audit. I read the information about the national debt in the annual report of the Agency to identify if there are any material inconsistencies with the audited financial statements. If I become aware of any apparent material misstatements or inconsistencies, I consider the implications for my report.

Opinion on the financial statements

In my opinion, the financial statements, which have been properly prepared in the form prescribed under section 12 of the National Treasury Management Agency Act 1990 and on the basis set out in paragraph (b) of the accounting policies, properly present the balance outstanding on the national debt at 31 December 2014 and the debt service cost for 2014.

In my opinion, proper books of account have been kept by the Agency. The financial statements are in agreement with the books of account.

Matters on which I report by exception

I report by exception if

• I have not received all the information and explanations I required for my audit, or
• my audit noted any material instance where public money has not been applied for the purposes intended or where the transactions did not conform to the authorities governing them, or
• the information pertaining to the national debt in the Agency’s annual report is not consistent with the related financial statements, or
• the statement on internal financial control does not reflect the Agency’s compliance with the Code of Practice for the Governance of State Bodies, or
• I find there are other material matters relating to the manner in which public business has been conducted.

I have nothing to report in regard to those matters upon which reporting is by exception.

 

Seamus McCarthy
Comptroller and Auditor General

16 June 2015

Accounting Policies

(a) Background

Under the National Treasury Management Agency Act, 1990, The National Treasury Management Agency (“the Agency”) performs borrowing and National Debt Management functions on behalf of the Minister for Finance.

The form of the statements has been approved by the Minister for Finance under section 12 of the National Treasury Management Agency Act, 1990.

The financial statements of the National Debt include disclosure notes in relation to the National Loans Advance Interest Account, the National Loans (Winding Up) Account, the National Treasury Management Agency (Unclaimed Dividends) Account, the Deposit Monies Investment Account and the Account of Stock Accepted in Payment of Inheritance Tax and Death Duties. These accounts were presented separately prior to the 2012 financial statements. As they are operational accounts set up for specific purposes, their cash balances are not included with the Exchequer account balance reported under Cash and Other Financial Assets in the National Debt Statement.

(b) Basis of Accounting

The measurement basis adopted is that of historical cost except where otherwise stated. Transactions are recognised using the cash basis of accounting.

The National Debt Statement is a Statement of the total amount of principal borrowed by Ireland not repaid at the end of the year, less cash and other financial assets available for redemption of those liabilities at the same date. The Minister for Finance under various statutes also guarantees borrowings by the State and other agencies. These guarantees are not included in these financial statements.

(c) Reporting Period

The reporting period is for the year ended 31 December 2014.

(d) Reporting Currency

The reporting currency is the euro, which is denoted by the symbol €.

(e) Receipts and Payments

Receipts and payments relating to the National Debt through the Exchequer Account, Foreign Currency Clearing Accounts and the CSRA are recorded at the time the money is received or payment made.

(f) Liability Valuation

Debt balances are recorded at redeemable par value.

(g) Derivatives

Swap agreements and other financial instruments are entered into for hedging purposes as part of the process of managing the National Debt. The results of those hedging activities that are linked with specific borrowing transactions are recognised in accordance with the underlying transactions. The net fund flows arising on hedging activities that are not linked with specific borrowing transactions are included in debt service costs at the time the funds are received or payment made. Where swaps are terminated or converted into other swap instruments the net fund flows affect debt service in accordance with the terms of the revised instrument.

(h) Foreign Currencies

Receipts and payments in foreign currencies are translated into euro at the rates of exchange prevailing at the date of the transaction. Liabilities and assets in foreign currencies are translated into euro at the rates of exchange ruling at the year end date.

(i) Maturity Profile

Medium/Long Term Debt is debt with an original maturity of more than one year and Short Term Debt is debt with an original maturity of not more than one year.

Service of Debt Statement

Year Ended 31 December

		2014	2013
	Note	€000	€000
Interest Paid
Medium/Long Term Debt	1	7,180,087	7,075,211
Short Term Debt	2	14,534	25,245
State Savings Schemes	3	399,632	349,952
Other Movements	4	1	(993)
Sinking Fund Payments	5(i)	633,177	624,552
Fees and Expenses	6(a)	70,234	96,463
Expenses of the Agency	6(b)	37,905	37,938
Interest Received on Deposits, Treasury Bills and Other Financial Assets		(123,837)	(125,204)
Total Debt Service Cost		8,211,733	8,083,164

Conor O’Kelly, Chief Executive
National Treasury Management Agency

Willie Walsh, Chairperson
National Treasury Management Agency
15 June 2015

National Debt Statement

31 December

			2014		2013
	Note		€ million		€ million
Medium/Long Term Debt	7(a)		–		–
Irish Government Bonds listed on the Irish Stock Exchange	7 (b)		116,339		111,007
EU/IMF Programme Funding	7(c)		58,793		66,942
Private Placements			602		602
European Investment Bank Loans			300		100
Council of Europe Development Bank Loan			20		–
Medium Term Notes			–		65
Other Medium/Long Term Loans			5		5
			176,059		178,721
Short Term Debt
Short Term Paper	8		4,102		2,645
Borrowings from Funds under the Control of the Minister for Finance	15		523		676
			4,625		3,321
State Savings Schemes
Savings Certificates		6,041	–	6,002	–
Savings Bonds		5,110	–	5,342	–
National Solidarity Bonds		2,576	–	1,752	–
Prize Bonds		2,176	–	1,932	–
Instalment Savings		479	–	476	–
Savings Stamps		2	–	2	–
	9		16,384		15,506
			197,068		197,548
Less: Cash and Other Financial Assets	10		(14,759)		(23,601)
National Debt	13		182,309		173,947

Notes 1 to 22 form part of these financial statements.

Conor O’Kelly, Chief Executive
National Treasury Management Agency

Willie Walsh, Chairperson
National Treasury Management Agency
15 June 2015

National Debt Cash Flow Statement

Year Ended 31 December

			2014	2013
		Note	€000	€000
Movement in Exchequer Balances:
Opening Balance in Exchequer Account		10	4,432,115	15,279,782
Deposits, Treasury Bills and Other Financial Assets		16	8,498,545	(10,597,868)
Borrowing Activity (see below)			(653,060)	36,287,560
			12,277,600	40,969,474
Exchequer Deficit			(8,188,537)	(11,503,359)
IBRC Promissory Notes Liability discharged by the Issue of Irish Government Bonds		22	–	(25,034,000)
Closing Balance in Exchequer Account		10	4,089,063	4,432,115
			2014	2013
			Net1	Net1
			€000	€000
Borrowing/(Repayment) Activity
Irish Government Bonds listed on the Irish Stock Exchange			5,162,211	23,372,9072
EU/IMF Programme Funding			(8,153,016)	11,046,885
European Investment Bank Loans			200,000	–
Council of Europe Development Bank Loan			20,000	–
Medium Term Notes			(69,049)	–
Other Medium/Long Term Loans			–	(126)
Short Term Paper			1,459,918	(45,025)
Borrowings from Ministerial Funds			(152,455)	(110,109)
Savings Certificates			38,987	1,210,847
Savings Bonds			(231,447)	(225,507)
National Solidarity Bonds			824,163	750,999
Prize Bonds			244,647	282,430
Instalment Savings			2,981	4,259
Total Borrowing/(Repayment) Activity			(653,060)	36,287,560

¹ The amounts represent the net borrowing activity, including rollover of debt and related hedging transactions.
² Borrowing activity includes €25.03 billion of floating rate Government bonds which were issued to the Central Bank of Ireland following the liquidation of IBRC in exchange for the Promissory Notes previously held by IBRC.

Notes 1 to 22 form part of these financial statements

Conor O’Kelly, Chief Executive
National Treasury Management Agency

Willie Walsh, Chairperson
National Treasury Management Agency
15 June 2015

Statement of Movement in National Debt

Year Ended 31 December

		2014	2013
	Note	€000	€000
Opening National Debt		173,946,651	137,632,014
Increase in National Debt (nominal)		8,362,755	36,314,637
Closing National Debt		182,309,406	173,946,651
Increase in National Debt (nominal) represented by:
Exchequer Deficit		8,188,537	11,503,359
Effect of Foreign Exchange Rate Movements		(2,661)	(3,433)
Net Premium/(Discount) on Medium/Long Term Loans		6,660	–
Net Premium/(Discount) on Bond Issuances and Cancellations		170,171	(219,150)
Movement in CSRA Current Balance	5(i)	48	(139)
Settlement of IBRC Promissory Notes Discharged through the issue of Irish Government Bonds	22	–	25,034,000
		8,362,755	36,314,637

Notes 1 to 22 form part of these financial statements.

Conor O’Kelly, Chief Executive
National Treasury Management Agency

Willie Walsh, Chairperson
National Treasury Management Agency
15 June 2015

Notes to the Financial Statements

 

1. Interest Paid on Medium/Long Term Debt

	2014	2013
	€000	€000
Irish Government Bonds listed on the Irish Stock Exchange	4,974,316	5,128,943
EU/IMF Programme Funding	2,166,321	1,904,968
Private Placements	34,693	34,693
European Investment Bank Loans	3,665	3,665
Council of Europe Development Bank Loan	277	–
Medium Term Notes	817	2,953
Other Medium/Long Term Debt	(2)	(11)
	7,180,087	7,075,211

 

2. Interest Paid on Short Term Debt

	2014	2013
	€000	€000
Short Term Paper	14,534	25,245

 

3. Interest Paid on State Savings Schemes

	2014	2013
	€000	€000
Savings Certificates	197,953	103,824
Savings Bonds	136,605	187,790
National Solidarity Bonds	16,657	9,718
Prizes in respect of Prize Bonds	32,873	35,160
Instalment Savings	15,544	13,460
	399,632	349,952

Payments for interest on State Savings Schemes include transfers to the Dormant Accounts Fund in respect of accumulated capitalised interest on certain accounts deemed dormant by An Post under the Dormant Accounts Act, 2001. The net interest amounts transferred were as follows:

	2014	2013
	€000	€000
Savings Certificates	787	906
Savings Bonds	1,029	515
Instalment Savings	255	224
	2,071	1,645

 

4. Other Movements

The Agency, as part of its remit, engages in a range of debt management transactions including derivatives (note 12). This figure includes the effect of net cashflows associated with these activities.

The net fund flows arising on hedging activities that are not linked with specific borrowing transactions are included in debt service costs at the time the funds are received or payment made.

5. Capital Services Redemption Account

The CSRA was established under section 22 of the Finance Act, 1950, as amended and provided an annuity to be charged on the Central Fund to meet the principal and interest on borrowings for voted capital services. Successive Finance Acts specified the amount of the annuity where money was borrowed to fund capital services in that year. A fixed amount may be used for servicing (interest payments) of the public debt with the balance to be applied for principal repayments (“Sinking Fund”).
The annuity charge will cease from 2015 in accordance with section 99 of the Finance Act, 2014.
The balance in the account is maintained by the Agency at a level subject to guidelines issued by the Minister for Finance under section 4(4) of the National Treasury Management Agency Act, 1990. Under ministerial guidelines, the balance in the CSRA at year-end 2014 was to be less than €1 million. To adhere to these guidelines, the Agency transfers excess funds from the CSRA to the Exchequer Account before year-end.

(i)  Movement in the Account for the Period		2014 €000		2013 €000
Balance at 1 January		499		360
Receipts
Interest Annuity	1,996,275		1,959,426
Sinking Fund Annuity	633,177		624,552
Derivative Transactions (note 5 (ii))	62,538,569		76,014,770
Interest on Cash and Other Financial Assets	115,356		114,163
Commitment and Other Fees	62		12,089
		65,283,439		78,725,000
Payments
Sinking Fund Payments, Redemption of:
Irish Government Bonds	(600,000)		(619,489)
Other Debt Instruments	(33,177)		(5,063)
Derivative Transactions (note 5 (ii))	(62,566,218)		(76,069,810)
Interest on National Debt	(1,997,608)		(1,960,440)
Expenses on National Debt	(1,134)		(389)
Transfer to Exchequer Account	(85,350)		(69,670)
		(65,283,487)		(78,724,861)
Balance at 31 December		451		499
Movement in the Year		(48)		139

(ii) Derivative Transactions

The Minister for Finance may enter into transactions of a normal banking nature in accordance with section 54(7) of the Finance Act, 1970.

Transactions of a normal banking nature include portfolio management activities such as forward exchange deals, swaps and interest on deposits which are related to debt servicing costs. Receipts from such transactions, other than those in a currency for which a foreign currency clearing account has been established under section 139 of the Finance Act, 1993, must be received into the CSRA. Such amounts may be used to make payments and repayments in respect of normal banking transactions or towards defraying interest and expenses on the public debt.

In addition transactions of a normal banking nature include derivative transactions entered into by the Agency with the National Asset Management Agency (“NAMA”) (in accordance with sections 52 and 235 of the National Asset Management Agency Act, 2009 and Statutory Instrument No. 203/2010) and the Irish Bank Resolution Corporation Limited (in Special Liquidation) (“IBRC”) (in accordance with section 17(4) of the Irish Bank Resolution Corporation Act, 2013 and Statutory Instrument No. 57/2013). Such transactions entered into with NAMA and IBRC are offset by matching transactions with market counterparties. As a result there is no net effect on the account.

Receipts and payments in respect of derivative transactions undertaken in respect of the National Debt, IBRC and NAMA in the period are outlined below:

	Receipts €000	Payments €000	Net 2014 €000	Net 2013 €000
NAMA Related Derivatives	14,808,469	(14,808,469)	–	–
IBRC Related Derivatives	47,729,459	(47,729,459)	–	–
National Debt Related Derivatives	641	(28,290)	(27,649)	(55,040)
	62,538,569	(62,566,218)	(27,649)	(55,040)

6 (a). Fees and Expenses

 

	2014	2013
	€000	€000
EU/IMF Programme Funding	20,346	60,793
Government Bonds and Other Expenses	15,730	13,677
Savings Certificates	9,186	9,207
National Solidarity Bonds	3,909	3,032
Prize Bonds	11,546	12,038
Savings Bonds	8,845	10,714
Instalment Savings	747	743
Fee Receipts	(75)	(13,741)
	70,234	96,463

 

6 (b). Expenses of the Agency

Expenses incurred by the Agency in the performance of its functions are charged on and paid out of the Exchequer Account or the growing produce thereof. Further details can be found in the financial statements of the NTMA Administration Account (note 1).

7 (a). Medium/Long Term Debt

The residual maturity profile at year-end of the Medium/Long Term Debt, taking into account the treasury management transactions entered into by the Agency, is as follows:

	2014	2013
	€ million	€ million
Debt Due for Repayment within 1 year	7,148	3,002
Debt Due for Repayment between 2 and 5 years	48,520	48,909
Debt Due for Repayment in more than 5 years	120,391	126,810
	176,059	178,721

 

7 (b). Irish Government Bonds listed on the Irish Stock Exchange

	2014	2013
	€ million	€ million
Fixed Rate Bonds	90,600	84,586
Floating Rate Bonds (note 22)	24,534	25,034
Amortising Bonds	1,205	1,387
	116,339	111,007

 

7 (c). EU/IMF Programme Funding

Ireland’s EU-IMF programme provides for €67.5 billion¹ in external support from the International Monetary Fund (“IMF”), the European Financial Stabilisation Mechanism (“EFSM”), the European Financial Stability Facility (“EFSF”) and other bilateral loans. The final programme disbursement of €0.80 billion from the EFSM took place in March 2014.

¹ The net euro amount received by the Exchequer was €67.5 billion after adjustment for below par issuance, deduction of a prepaid margin, and the effect of foreign exchange transactions.

The liabilities outstanding under the EU/IMF Programme at end 2014 included in 7(a) above, taking into account the effect of currency hedging transactions, are as follows:

	2014	Weighted Average Term	2013	Weighted Average Term
	€ million	Years	€ million	Years
Lender
International Monetary Fund	13,550	8.3 Years	22,528	7.3 Years
European Financial Stability Facility	17,881	20.7 Years	17,881	20.7 Years
European Financial Stabilisation Mechanism	22,500	12.2 Years	21,700	12.4 Years
United Kingdom Treasury	3,862	7.5 Years	3,833	7.5 Years
Kingdom of Denmark	400	7.5 Years	400	7.5 Years
Kingdom of Sweden	600	7.5 Years	600	7.5 Years
Total	58,793		66,942

The maturity extensions to loans from the EFSF agreed in June 2013 are reflected above. While maturity extensions to loans from the EFSM were also agreed in 2013, the revised maturity dates will only be determined as they approach their original maturity dates. Accordingly the EFSM loan maturity extensions are not reflected above. It is not expected that Ireland will have to refinance any of its EFSM loans before 2027.

The net loan provided by the EFSF of €17,881 million is net of certain prepaid margins deducted from the initial drawdown in 2011. The total nominal debt due to the EFSF is €18,411 million. €485 million of the prepaid margin of €530 million will be rebated to Ireland along with the related EFSF investment return; the remaining prepaid margin of €45 million is due to the Member State Guarantors, and will be reflected as a debt service cost in future periods.

7(c). EU/IMF Programme Funding

In December 2014, the Agency completed the first tranche of early repayment of Ireland’s IMF loan facility. The total repayment of €9 billion was made over two dates, December 10th and 17th. During Quarter 1 of 2015, the Agency made two further repayments of Ireland’s IMF loan facility and at 31st March 2015, the outstanding loan balance was €4.8 billion. These repayments discharged all scheduled IMF principal repayment obligations that were originally to fall due from July 2015 to January 2021.

These repayments were made with the agreement of the IMF and no penalties or charges were incurred. The early repayment of the IMF loan facility is expected to generate significant savings in Government interest expenditure starting in 2015.

8. Short Term Paper

The Agency issues short-term paper of maturities of up to one year to raise short-term funds. The proceeds are used to fund the Exchequer deficit and as bridging finance in the replacement of longer term debt, and for other liquidity management purposes.  Borrowings may be in a range of currencies, but all non-euro borrowings are immediately swapped back into euro using foreign exchange contracts. An increase of €1.8 billion in Euro Commercial Paper was the primary reason for the increase at end 2014.

9. State Savings Schemes

Amounts shown in respect of Savings Certificates, Instalment Savings, Savings Bonds, Solidarity Bonds and Prize Bonds are net of €1.5 million (2013: €9.6 million) cash balances held by An Post, Permanent TSB and the Prize Bond Company. An Post and the Prize Bond Company act as registrars for the respective schemes.

As these financial statements are prepared on a cash basis, the liabilities do not include the sum of €599 million (2013: €604 million), being the estimate of the amount of accrued interest at 31 December 2014 in respect of Savings Bonds, Savings Certificates and Instalment Savings.

The Small Savings Reserve Fund (“the Fund”) was set up under section 160 of the Finance Act, 1994. In any calendar year if interest payments on encashments of small savings exceed 11 per cent of the total interest accrued on such savings for the previous year, the resources of the Fund may be applied towards meeting those interest costs which exceed 11 percent of that accrued income. The initial amount paid into the Fund has been expended. No moneys were paid into the Fund in 2014 or were held in the Fund at year end. The Fund was dissolved under section 98 of the Finance Act, 2014.

10. Cash and Other Financial Assets

	Opening Balance at 1 January 2014	Movements during 2014	Closing Balance at 31 December 2014
	€000	€000	€000
Exchequer Account	4,432,115	(343,052)	4,089,063
Capital Services Redemption Account (note 5(i))	499	(48)	451
Housing Finance Agency Guaranteed Notes	3,703,756	(559,241)	3,144,515
Deposits, Collateralised Deposits and Treasury Bills	14,108,725	(7,095,053)	7,013,672
CSA Collateral Funding (note 12)	1,355,640	(844,230)	511,410
	23,600,735	(8,841,624)	14,759,111

Deposits, Collateralised Deposits and Treasury Bills are made up of Deposits with commercial banks of €2.984 billion (2013: €3.679 billion), Collateralised Deposits of €2.556 billion (2013: €7.389 billion) and Treasury Bills of €1.474 billion (2013: €3.041 billion).

The Housing Finance Agency Guaranteed Notes may not be readily realisable dependent on market conditions.

CSA Collateral Funding arises from the requirement to post cash collateral under Credit Support Annexes associated with certain derivative transactions. These balances, and access to the related cash collateral, change on a daily basis and are dependent on the market value of these derivatives.

11. Risk Management

The Agency’s responsibility for both the issuance of new debt and the repayment of maturing debt, together with the management of the interest rate and currency profile of the total debt portfolio, makes the management of risk a central and critical element of the Agency’s business. The principal categories of risk arising from the Agency’s activities are liquidity, market, counterparty credit and operational risk and the Agency has a range of policies and procedures to measure and control the risks involved.

A key objective of the Agency is to ensure that the Exchequer has sufficient cash to meet all obligations as they fall due. Ensuring that the Exchequer has sufficient liquidity is one of the Agency’s most critical tasks. Liquidity risks related to the National Debt can arise either from domestic events or, given the high level of linkage between markets, from events outside Ireland. The Agency manages this risk primarily by maintaining appropriate cash buffers and by controlling the amount of liabilities maturing in any particular period of time and matching the timing and volume of funding. This is reinforced by the Agency’s activities in maintaining a well informed and diversified international investor base, with a presence in all major capital markets and a broad range of debt instruments which can be issued.

Market risk is the risk that movements in market interest or exchange rates or other prices adversely impact on debt service costs or the total market value of the debt. The Agency must have regard both to the short term and long term implications of its transactions given its task of controlling not only the immediate fiscal debt service costs but also the present value of all future payments of principal and interest. The exposure to interest rate and currency risk is controlled by managing the interest rate and currency composition of the portfolio in accordance with Ministerial guidelines. Specific quantitative limits are in place to control market risk; exposures against these limits are reported regularly both to portfolio managers and to senior management. As conditions in financial markets change, the appropriate interest rate and currency profile of the portfolio is reassessed. The Agency seeks to achieve the best trade-off between cost and risk over time and has in place a hedging programme to manage interest rate and exchange rate risks and to protect the Exchequer from potential volatility in future years. More information on the use of derivatives is set out in Derivatives (note 12).

Counterparty credit risk arises from derivatives, deposits and foreign exchange transactions. The level of credit risk is managed by dealing only with counterparties of high credit standing. Procedures provide for the approval of risk limits for all counterparties and exposures are reported daily to management. A review of all limits is undertaken periodically to take account of changes in the credit standing of counterparties or economic and political events. In order to mitigate the Exchequer’s exposure to market counterparties while at the same time ensuring that Ireland has efficient market access for its hedging activities, the Agency may enter into credit support arrangements with the market participants with which it wishes to trade – this involves the receipt and posting of collateral to offset the market value of exposures. More information on the use of credit support arrangements is set out in Derivatives (note 12).

Controls have been established to ensure that operational risks are managed in a prudent manner. These controls include the segregation of duties between dealing, processing, payments and reporting.

12. Derivatives

As part of its risk management strategy the Agency uses a combination of derivatives including interest rate swaps, currency swaps and foreign exchange contracts. The following table shows the nominal value, and present value, of the instruments related to the National Debt outstanding at year end. The present value of each instrument is determined by using an appropriate rate of interest to discount all its future cashflows to their present value.

	31 December 2014		31 December 2013
	Nominal € million	Present Value € million	Nominal € million	Present Value € million
Interest Rate Swaps	19,079	(1,321)	28,909	(923)
Currency Swaps & Foreign Exchange Contracts	15,402	878	18,225	(750)
	34,481	(443)	47,134	(1,673)

The Agency provides treasury services to the National Asset Management Agency (“NAMA”) under section 52 of the National Asset Management Agency Act, 2009. Accordingly it may enter into derivative transactions with NAMA. Any such transactions are offset by matching transactions with market counterparties. As a result there is no net effect on the National Debt accounts. The nominal value of interest rate swaps transacted with NAMA outstanding at end 2014 was €12.8 billion (2013: €23.5 billion); the nominal value of currency swaps and foreign exchange rate contracts transacted with NAMA outstanding at end 2014 was €3.0 billion (2013: €5.6 billion).

In order to mitigate the risks arising from derivative transactions, the Agency enters into credit support arrangements with its market counterparties. Derivative contracts are drawn up in accordance with Master Agreements of the International Swaps and Derivatives Association (“ISDA”). A Credit Support Annex (“CSA”) is a legal document which may be attached to an ISDA Master Agreement to regulate credit support (in this case, cash collateral) for derivative transactions and it defines the circumstances under which counterparties are required to post collateral. Under the CSAs, the posting of cash constitutes an outright transfer of ownership. However, the transfer is subject to an obligation to return equivalent collateral in line with changes in market values or under certain circumstances such as a Termination Event or an Event of Default. The provider of collateral is entitled to deposit interest on cash balances posted.

The Agency established a Credit Support Account in the Central Bank of Ireland in 2010 to facilitate these transactions. Derivative contracts are valued daily. When collateral is required from a counterparty it is paid into the Credit Support Account. When the Agency is required to post collateral with a counterparty, it uses the funds in the Credit Support Account to fund the collateral payment. If there are insufficient funds in the Credit Support Account, the Account is funded from the Exchequer.

Credit Support Account	2014 € million	2013 € million
Balance at 1 January	–	–
Margin transfers received from counterparties	4,194	5,702
Margin transfers paid to counterparties	(3,350)	(6,535)
Net Exchequer funding during the year (note 10)	(844)	833
Balance at 31 December	NIL	NIL
	2014 € million	2013 € million
Note:
Exchequer Funding at 31 December	511	1,356
Net Collateral Posted to counterparties at 31 December (note 10)	(511)	(1,356)

 

The Agency has entered into a Collateral Posting Agreement with NAMA. At end 2014, NAMA had posted collateral of €0.69 billion (2013: €0.802 billion) to the Agency as part of this agreement.

The Agency has also entered into a Collateral Posting Agreement with IBRC. At end 2014, IBRC had posted collateral of €0.025 billion (2013: €0.102 billion) to the Agency as part of this agreement.

13. National Debt – Currency Composition

The Agency hedges the foreign currency risk of the National Debt through the use of forward foreign exchange contracts and currency swaps. The currency composition of the National Debt, and related currency hedges, are as follows:

	As at 31 December
Currency	2014 € million	2013 € million
Debt Instruments
Euro	167,871	155,722
US Dollar	8,312	9,323
Pounds Sterling	6,023	6,462
Japanese Yen	978	1,697
Swiss Franc	–	24
	183,184	173,228
Foreign Currency & Swap Contracts
Euro	14,460	18,225
US Dollar	(8,324)	(9,323)
Pounds Sterling	(6,024)	(6,462)
Japanese Yen	(987)	(1,697)
Swiss Franc	–	(24)
	(875)	719
National Debt1	182,309	173,947

¹ This figure is net of cash and other financial assets as at 31 December 2014 of €14,759 million (31 December 2013: €23,601 million) (note 10).

 14. Foreign Currency Clearing Accounts

	Receipts €000	Payments €000	2014 Net €000
Balance at 1 January 2014			NIL
Debt Service
MLT Loans Interest	542,503	(891,509)	(349,006)
Short Term Debt Interest	–	(1,185)	(1,185)
Other Movements	68,839,917	(69,756,584)	(916,667)
Fees and Expenses	–	(7,601)	(7,601)
Expenses of the Agency	–	(1,367)	(1,367)
Borrowing Activity
EU/IMF Programme	8,341,039	(8,994,157)	(653,118)
Other MLT Loans	12,936	(81,985)	(69,049)
Short Term Debt	6,891,196	(4,893,203)	1,997,993
Balance at 31 December 2014	84,627,591	(84,627,591)	NIL

 

15. Borrowings from Funds under the Control of the Minister for Finance

These funds are short term borrowings of the Exchequer drawn down as a “ways and means” of funding Exchequer requirements from a number of funds under the control of the Minister for Finance.

	2014	2013
	€ million	€ million
Post Office Savings Bank Fund	456	471
Deposit Monies Investment Account (note 20)	67	205
	523	676

 

16. Deposits, Treasury Bills and Other Financial Assets

The Agency places short-term investments in Deposits, Collateralised Deposits and Treasury Bills for maturities of up to one year for the purpose of liquidity management.

17. National Loans Advance Interest Account

The Agency can cancel or issue amounts of existing Irish Government Bonds. These transactions are effected by means of sales or purchases undertaken by the Post Office Savings Bank Fund (“POSBF”). The POSBF then settles with the Exchequer. The settlement amount for each bond transaction includes the accrued interest at that point in the coupon period. The interest paid is deposited in the National Loans Advance Interest Account until the full dividend is due on the coupon date. On the coupon date, the interest is then used to offset the related servicing costs of the Exchequer.

A full dividend is payable to the registered owner where a bond is held on an ex-dividend date. The purpose of this account is for the POSBF to compensate the Exchequer for the unearned element of the dividend arising on tranching bonds cum-dividend or on cancelling bonds ex-dividend.

	2014	2013
	€000	€000
Account of Receipts and Payments
Balance at 1 January	5,344	12,179
Accrued interest received on National Loans
– Tranches and Auctions	46,913	42,038
Accrued interest paid on National Loans	(3,447)	(48,873)
Balance at 31 December – Cash with Central Bank of Ireland	48,810	5,344

 

18. National Loans (Winding Up) Account

When a National Loan, Stock or Government Bond is due for redemption, the full amount outstanding is payable to the holder. Any amount not claimed by the holder at the redemption date is transferred into this account by a payment from the Exchequer. Any future claims which are made in relation to these loans are therefore met from this account. This account also includes balances which were held by the Central Bank and the Department of Finance as Paying Agents in respect of uncashed redemption payments, and were transferred to the Agency.

	2014	2013
	€000	€000
Account of Receipts and Payments
Balance at 1 January	3,089	3,455
Receipts from Exchequer	75	198
Receipts from Central Bank Suspense Account	69	102
Payments to Central Bank Suspense Account	(102)	(70)
Payments for Redemption of National Loans	(56)	(596)
Balance at 31 December – Cash with Central Bank of Ireland	3,075	3,089

 

19. National Treasury Management Agency (Unclaimed Dividends) Account

When a dividend payment is due on a bond liability, the full amount due is paid by the Agency to the Paying Agent which then issues to the registered holders. The balance in the unclaimed dividends account represents dividends on matured loans, which have been returned to the Agency by the Paying Agent and have yet to be claimed by the registered holders. The balance is available to cover future claims on these dividends. The Paying Agent maintains a cash float, on behalf of the Agency, which it uses to service claims as they arise during the year.

	2014	2013
Account of Receipts and Payments	€000	€000
Balance at 1 January	2,528	2,556
Receipts/(Payments) of unclaimed dividends	21	(28)
Balance at 31 December – Cash with Central Bank of Ireland	2,549	2,528

20. Deposit Monies Investment Account

This account records the borrowings and repayments of surplus funds held in the Supply Account of the Paymaster General.

	2014	2013
Account of Receipts and Payments	€000	€000
Balance at 1 January	204,975	162,082
Ways and Means Advances Paid to Exchequer	4,978,316	6,763,310
Ways and Means Advances Repaid by Exchequer	(5,116,066)	(6,720,417)
Balance at 31 December – Ways and Means Advances to Exchequer (note 15)	67,225	204,975

21. Account of Stock Accepted in Payment of Inheritance Tax and Death Duties

No stock was accepted in payment of inheritance tax and death duties during 2014.

22. Settlement of IBRC Promissory Notes

Following the liquidation of Irish Bank Resolution Corporation (“IBRC”) on 7th February 2013, and the agreement between the Irish Government and the Central Bank of Ireland (“CBI”) to replace the promissory notes provided to State-owned IBRC with long-term Government Bonds, the promissory notes were cancelled and replaced with eight new Floating Rate Treasury Bonds. A total amount of €25.03 billion was issued on 8th February 2013 to the CBI with maturities ranging from 25 to 40 years. The bonds will pay interest every six months (June and December) based on the 6-month Euribor interest rate plus a fixed margin which averages 2.63 percentage points across the eight issues. In December 2014, the Agency bought and cancelled €0.5 billion of the Floating Rate Treasury Bond due to mature in June 2038. The bonds were purchased from the CBI, reducing the total nominal outstanding of the Floating Rate Bonds to €24.53 billion. The CBI intends to sell a minimum of these securities in accordance with the following schedule: 2015-2018 (€0.5 billion per annum), 2019-2023 (€1 billion per annum), and 2024 on (€2 billion per annum until all bonds are sold).