Thursday, October 4, 2012

Funding the Exchequer Balance

Yesterday, the NTMA published its Q3 report on the Funding of the Exchequer Balance.  It includes the following table.

Exchequer Funding

At the end of September there was €23.7 billion in the Exchequer Account.   The Exchequer has run a deficit of more than €11 billion in the first nine months of the year but, as can be seen above, has received surplus funding of around €10 billion over and above that required to finance the €11 billion cash deficit.

The source of the €21 billion of funding received by the Exchequer this year has been:

  • EU/IMF Loans: €18.7 billion
  • Long term government bonds: –€0.5 billion
  • Commerical Paper: €2.3 billion
  • National Savings Schemes: €1.3 billion
  • Other Funds: –€0.6 billion

The funding from long-term government bonds is negative because there was a €5.5 billion bond that matured in March of this year and this offsets the €5.0 billion of new funding that was received from the NTMA’s ventures back into the long-term bond markets in July and August. [There was also €3.4 billion bond issued in April to meet this year’s Promissory Note payment but as that negated a cash payment it did not increase funding.]

At €23.7 billion (15% of GDP) it is clear that the Exchequer is sitting on a massive cash buffer.  There are reasons why such a buffer has emerged and is required.  The NTMA made the strategic decision to re-engage with bond markets at a time when bond yields allowed.  We didn’t need the money at the time but the signal of the moves was important. 

There are bond redemptions of €5.6 billion (April 2013) and €7.6 billion (January 2014) and a 2014 Exchequer Deficit to be funded.  Still, one would wonder whether we need a cash pile of €23.7 billion now and it should also be remembered that this offsetting asset exists when gross general government debt figures are quoted.

1 comment:

  1. You raise an important question, Seamus. When combined with NPRF assets, the Government is holding cash and assets worth €29 billion. And this doesn't count tangible assets such as Bank of Ireland equity and preference shares. It seems reasonable that a small portion of this could be used for investing in our productive capacity. For instance, IBEC estimates that rolling out Next Generation Broadband to 90% of businesses and households would cost €2.5 billion (as always, actual outturn would be higher). This would have a considerable supply-side growth impact (never mind the short-term demand-side) - increasing our productive capacity and helping that structural balance which we all discussed in the referendum. Similar high supply-side investments could also be considered. In principle, would this not be a suitable use for a small portion of the cash reserves?