Saturday, April 3, 2010

Exchequer balance stops getting worse but…

After more than two years of huge deterioration in our public finances, the March Exchequer Return suggests that the Exchequer Balance is finally beginning to stabilise,  i.e. it has stopped getting worse.  It is truly awful but at least the downward spiral seems to have stopped.  The cumulative deficit for the first three months of 2010 is €3,942 million.
Here we see the pattern of the cumulative Exchequer Balance by month since 2007.  Click to enlarge.
Exchequer Balance
The 2010 (red) line is tracking the 2009 (green) line.  A close up of the figures to March of each year can be seen here
This is not to say that tracking the 2009 pattern is an achievement to laud.  For 2009, the Exchequer ran a deficit of nearly €25 billion.  This was a huge deterioration on the 2008 deficit of just under €13 billion, which itself was a huge fall on 2007 which had a deficit of less than €2 billion.
But at least after two years of rapidly deteriorating Exchequer deficits, there now seems to be a pattern of stability emerging.  The deficit is still 6% larger than it was last this time last year but the rate of decline is easing.   For example, in March 2009 the deficit (€3,721 million) was some 950% greater than the deficit in March 2008 (€354 million).  An annual comparison of the monthly deficits shows that January 2007 was the last month to have a better Exchequer Balance than the same month 12 months previously. The comparison has been negative for the past 39  months in a row.  See table here.
While the deterioration was routinely worse than a 100%, and oftentimes much more, the figures for the first three months of this year are –4.4%, –15.5% and –5.9%.  The rapid expansion of the Exchequer Deficit is easing.  With tax revenues continuing to fall, much of this stability has been brought about with moderation in expenditure.
A table with a comparison of the monthly Exchequer Balances is available here.  Although the monthly figures do contain a lot of noise we can see that the deficit in March was actually €102 million or 6.2% less than in was in the same month in 2009.
Here comes the but….
If we disaggregate the Exchequer Balance to its Current and Capital components we see that there is continued deterioration in the Current Budget Deficit.  Click to enlarge.
Cumulative Current Account BalancesA snap-shot of the patterns to March can be see here.  The cumulative Current Budget Deficit in March (€3,706 million) is over 40% worse than what it was at this time last year (€2,613 million). And for March alone the Current Budget Deficit is over 50% worse than it was in the same month last year.  This is not good.
Tables of the cumulative Current  Budget Deficits and the monthly Current Budget Deficits are available. 


  1. If the Current Budget Deficit graph is repeated for the whole of 2010 this will exclude the €7bn (€3bn into NPRF and €4bn into Anglo)?

    And given the clever bookkeeping (promissory notes) of the reacps this year the capital account might look a lot better but the current account could be substantially worse?

  2. Hi Greg,

    Neither the NPRF contribution or the Anglo recapitisaltion will affect the Current Budget Deficit.

    The €3 billion contribution to the National Pension Reserve Fund in 2009 was an item of capital expenditure. We 'frontloaded' our 2010 contribution to the NPRF to 2009 so we will not be making a contribution this year. The payment was brought forward to ensure there was a enough cash in the fund to finance the purchase of preference shares in BOI and AIB as part of the bank recapitalisation process.

    The €4 billion transfer to the state-owned Anlgo was also a capital account item, under the non-voted heading. We won't be transferring actual cash to them this year. The €8.3 billion we're giving is in the form of a promissory note rather than cash as was done for the €4 billion in 2009.

    With this €7 billion not appearing on the Capital Account this year, there will be a major improvement on that side.

    However, the continuing deterioration in the Current Budget Deficit is a worry. This is has little to do with banking collapses, NAMA and the like. This is simply because, on a day to day basis, the government is spending far more than it is taking in. This is not sustainable.

    Expect the Exchequer Deficit to improve this year. But this is mainly because of 'clever' bookkeeping in the Capital Account. The Current Budget Deficit is still showing no sign of improving.