Thursday, June 25, 2015

Debt in Ireland is around 260 per cent of GDP and falling

At the end of 2014 the level of ‘real economy’ debt in Ireland was reported as being:

  • Household Debt: €157.7 billion
  • Government Debt: €203.3 billion
  • Non-Financial Corporate Debt: €303.4 billion
  • TOTAL DEBT: €664.4 billion

Household debt is the total loan liabilities of the household sector, government debt is the total of general government debt under the Maastricht criteria and NFC debt is the total consolidated loan and non-equity security liabilities of the corporate sector (excluding financials). The NFC figure is for 2013 as a consolidated figure for 2014 has yet to be reported but the non-consolidated data that is available does not show much change on 2014.

It mightn’t be by much but the massive total has begun to come down.

Total Debt

Of course it is important to consider the size of the debt in relative terms so here it is a per cent of GDP.

Total Debt to GDP

If we look at the pattern by sector we do not see too many surprises. Note that the 2014 reduction in general government debt is related to the liquidation of the IBRC.

Debt by Sector

The exception to this is the pattern of the red line – NFC debt – which continued to increase after the ending of the boom and showed rapid acceleration in 2011.  The reason for this is the large presence of MNCs in Ireland.  Data from the CSO now allows us to decompose NFC debt in Ireland into two categories and “uses the residency of the ultimate controlling parent as the basis for distinguishing between Irish-controlled and Foreign-controlled enterprises.”  This gives the following pattern:

NFC Debt by Owner

The difference between the two lines reflects the impact of foreign MNCs on the NFC debt figure for Ireland and it can be seen that this gap widened considerably in the last few years.  The debt attributed to foreign-parent NFCs in the Irish data was equivalent to 107 per cent of GDP in 2013.  Again the data do not yet go to 2014 but it is likely that the debt of Irish-parent NFCs did not change much in 2014.

The CSO also note that:

In the period since 2009 several large multinational corporations have relocated their head offices to Ireland, thus becoming an Irish Parent in this analysis. However, their impact on the scale of Private sector debt during this time is relatively small due to the fact that the debt instruments (debt securities and loans) play a minor role in the structure of their balance sheets which are predominately composed of equity liabilities vis-à-vis the rest of the world.

Here are the sectoral debt levels but only including the ‘Irish-parent’ component of NFC debt.

Debt by Sector - Irish

If we get a relative measure for these using GDP we see the following (the pattern is much the same whether one uses GNP or some hybrid measure though the levels will be different):

Debt by Sector to GDP - Irish

Depending on what happened to the debts of Irish firm in 2014 (probably not a lot) the total at the end of 2014 would have been around 260 per cent of GDP.  This is a large amount of debt but is now on a sustainable path.  There are two further points that buttress this.  First, the interest rates on much of this debt are very low and, second, there are two sides to a balance sheet.

And to conclude here is the total (which assumes that the total debt of Irish-parent NFCs was unchanged in 2014):

Total Debt to GDP - Irish

Figures for Irish debt of 400 per cent of GDP (or 500 per cent of GNP) are sometimes bandied around.  Even larger figures can be mustered up using non-consolidated data. 

Here we note that a 400 per cent figure relates to 2012 and is only possible with the inclusion of the debts of foreign-owned MNCs which do not have to be paid from Irish income.  The use of a figure that is three years out of date and makes an error equivalent to our entire GDP offers little.

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