Saturday, January 7, 2012

State Funding through 2013

Over the next two years the Irish government needs about €46 billion of funding.

Funding Requirements 2012-13

We still have to draw down around €33.5 billion of the loans agreed as part of the EU/IMF programme.    The remaining €12.5 billion can come from a combination of our existing resources, State Savings Schemes and some market funds. 

There was €13 billion in the Exchequer Account at the end of 2011.  The NTMA have suggested that this could be reduced to around €5 billion over the next two years although the European Commission have indicated that they would prefer to see the cash buffer maintained at its current level.

It is forecast that €1.5 billion a year will be raised from the State Savings Schemes over the next two years.  This is well above the 2000-2007 average but in line with performance over the last few years.  At €1.36 billion the amount raised in 2011 was just below this. 

If the €1.5 billion a year is achieved then the State needs around €10 billion to see it through to the end of 2013.  We have €13 billion of cash on deposit (and there is also around €5 billion remaining in the National Pension Reserve Fund (NPRF)). 

How much of this cash is used will depend on how much market funding can be raised.  The plan for the NTMA to “dip its toe” back in the markets before the end of this year, but given the amount of cash on reserve this can be delayed until 2013.

All told the State is in a reasonably secure position for the next 24 months (where ‘reasonably secure’ simply means we won’t run out of money).  After that there is the small matter of a €12 billion bond maturing in on the 15th January 2014.

We are due to begin repaying some of the EU and IMF loans in 2015 and there is also the need t0 find funding for the €10 billion Exchequer deficit due to arise in 2014 and the €7 billion deficit in 2015.

While the plan is to “dip” back into bond markets before the end of 2012 we have to ensure that we have the capacity to meet the €12 billion debt rollover in January 2014 and that year’s €10 billion Exchequer deficit.  Even if the balance on the Exchequer Account is allowed to fall from €13 billion to €5 billion we will still need to raise around €25 billion of market funding by the end of 2014.

This will be a challenge but we will not face a crunch until the start of 2014 and there is a lot that can happen over the next two years.

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