NTMA publishes 2016 Annual Report and 2017 midyear update

10 July 2017

  • NTMA locking in benefits of low interest rates; borrowing over longer periods; pre-funding in advance of redemptions; and reducing interest rate risk
  • NTMA market activity reduces 2017-2020 refinancing obligations from €70bn to less than €40bn
  • Interest cost expected to fall to below €6bn per annum by 2020, from €6.7bn in 2016 and a peak of €7.5bn in 2014
  • Low interest rates are a major asset for Ireland that may offer an opportunity to deliver major PPP infrastructure projects at low cost

10 July 2017 - The National Treasury Management Agency (NTMA) today published its 2016 Annual Report and delivered a midyear update for 2017.

Comment by NTMA Chief Executive Conor O'Kelly:

"We are taking advantage of unprecedented market conditions to lock in the benefits of lower rates and to borrow for longer periods.

During 2016 the NTMA issued €8.25bn of benchmark bonds at a weighted average yield of 0.82% and a weighted average maturity of 10 years, as well as a €100m 100-year note at a yield of 2.35%.

During the first half of 2017, we issued €8.75bn of benchmark bonds - of a full-year targeted range of €9bn to €13bn - at a weighted average yield of 1.3% and a weighted average maturity of over 15 years.

Today Ireland's National Debt has the longest maturity in the Eurozone.

In April 2017, we also raised €609.5m as part of our diversification strategy through the issuance of Ireland's first-ever Inflation-Linked Bond under the NTMA's Euro Medium Term

Note (EMTN) Programme.

The current low interest rate environment may also offer an opportunity for greater use of Public Private Partnerships (PPPs) to overcome Exchequer balance sheet restrictions and deliver further infrastructure at a lower long-term cost".

Comment by Minister for Finance, Paschal Donohoe:

"The NTMA continues to play an important role in Ireland's recovery from the financial crisis.

The progress that the NTMA has made in the last 18 months, which is the period under review today, will further assist in putting the public finances on a sustainable, long-term footing.

This progress reflects and builds on the measures taken by Government in the past 6 years and our determination as a country to deal with the challenges facing us.

Throughout 2016 and again this year the NTMA has made important strides on behalf of the State in reducing our borrowing costs and flattening out our debt profile. This makes a significant difference to our budgetary arithmetic and enables us to plan ahead with greater confidence than would otherwise be the case.

It is of course important to note, as the NTMA CEO does, that Ireland's debt remains high in absolute terms and we must continue to prioritise its reduction to more sustainable levels".

Mr O'Kelly also said:

  • While we cannot predict the future path of interest rates, the NTMA believes that the risks are asymmetric
  • The NTMA's market activity has been designed to reduce borrowing costs and extend the maturity profile of Ireland's debt given the exceptionally favourable interest rate environment
  • This has resulted in Ireland now having the longest average maturity debt profile in the Eurozone (11.7 years at end 2016, up from 7 years at end 2012)
  • Borrowing at lower rates will result in the debt servicing cost falling below €6bn per annum by 2020, from €6.7bn in 2016 and the peak of €7.5bn in 2014.
  • The NTMA has reduced the risk profile of Ireland's debt by pre-funding in advance of significant debt redemptions. It has done this by:

- Refinancing IMF debt early (€18bn)

- Bilateral switches - the early redemption of short-term bonds in exchange for longer-term bonds (€3bn)

- Building up significant cash reserves including AIB share disposal proceeds, of €21.6bn at end-June 2017

  • The NTMA, in addition, has accelerated the buyback of promissory notes from the Central Bank (€7.5bn)
  • Actions taken by the NTMA have reduced Ireland's 2017-2020 refinancing obligations from €70bn to less than €40bn taking account of cash balances and locked in today's low rates
  • The current low interest rate environment may offer an opportunity for greater use of Public Private Partnerships (PPPs) to overcome balance sheet restrictions and deliver further infrastructure at a low cost.

However, Mr O'Kelly also said that Ireland's debt remains high in absolute debt terms at €200bn (four times its 2007 level) and that international investors continue to monitor Ireland's progress in ensuring its debt remains sustainable.

While Ireland's economic fundamentals are positive, there are a number of metrics used by investors which are seen as less favourable, he said. These include:

  • General Government Debt to General Government Revenue (275% compared to EU28 average of 165%)
  • Debt per Capita (c.€42,000 per person compared to EU28 average of c.€24,000).

NTMA business units - key points:

  • The Ireland Strategic Investment Fund has committed a total of €2.8bn to Irish investments and is significantly ahead of target in attracting private sector co-investment in Irish companies and projects. The multiple we expected to see of 1x is actually 1.9x. This means that the €2.8bn investment from the Strategic Investment Fund has resulted in a total investment commitment to Ireland of €8.1bn.
  • The National Development Finance Agency achieved a major milestone in 2016 with Ireland's first healthcare PPP reaching financial close. Construction of 14 primary healthcare centres is now actively underway across 14 sites.
  • NewERA experienced significant growth in the number of corporate finance assignments for various Government departments respect of the transport, agriculture, health and climate action sectors. There was also €0.43bn of dividends received by the Exchequer from the 6 major State bodies within NewERA's remit reflecting tailored dividend targets as advised by NewERA.
  • The State Claims Agency implemented further steps to manage and mitigate risk across the 145 public sector bodies within its remit, using the world's first nationwide risk management system to record and analyse key trends and other risk data. The number of claims managed by the SCA continued to grow (in number and value) following recent extensions to its remit.
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