Friday, May 18, 2012

The General Government Debt

At the end of 2007, the gross general government debt was €47.2 billion.  The recent Eurostat debt and deficit release showed that this has increased to €169.3 billion at the end of 2011.  That is an increase of an incredible €122 billion in just four years.  We can use the previous post on the general government accounts to see how that has come about.

There we saw that from 2008 to 2011 Ireland ran underlying primary deficits summing to €48.5 billion.  Interest expenditure over the four years was €15.4 billion.  At the same time temporary or once-off measures totalled €41.4 billion, with bank-bailout payments making up the bulk of this.

These three items sum to €105.3 billion.  To get to the full €122 billion increase we must account for some stock/flow adjustments.  In the main this is an increase in borrowings to build up a cash buffer.  Details from the NTMA show that balances of €17.8 billion “were held
in Departmental Funds + other Accounts, including the Exchequer A/c.” at the end of 2011.  At the end of 2007 these cash balances were just €4.4 billion.

Here is a summary table of the changes in the debt since 2007.

Sources of Debt

The largest single item is the €48.5 billion of primary deficits run since 2008.  This is the excess of government expenditure on public sector pay, social welfare, services and investment over government revenue. 

The next largest item is the €47.2 billion of debt we carried into the crisis in 2007.  This debt is largely the residual of the last great crisis in the public finances from the 1980s.  Data from the NTMA show that in 1994 (commonly taken as the start of Celtic Tiger Mark 1) the general government debt was €41.7 billion.  It hardly changed over the next 13 years.

Temporary and once-off measures account for €41.4 billion of the increase in the general government debt.  The vast majority of this is the bank payments and of that the bulk is the €30.85 billion of Promissory Notes used to recapitalisation Anglo, INBS and to a lesser extent EBS in 2010.  Once-off measures (though they seem to be happening a lot) account for 34% of the increase in the debt over the past four years and 25% of the stock of debt at the end of 2011.

There is a big drop them to the final two items.  Over the four years interest expenditure was €15.4 billion.  In 2007, interest expenditure was €1.8 billion so if the 2007 debt and interest rates had been maintained interest would still have consumed €7.2 billion over the four years.  The extra debt added about €8.2 billion of additional interest costs over the four years and the bulk of that is due to the primary deficits rather than the once-off measures.  From the last post we saw that social transfers-in-cash totalled €96.7 billion over the four years.

The final item is the stock/flow adjustment that is mainly an increase in borrowing by the NTMA in 2008 and 2009 to build up cash balances.  The NTMA borrowed far more than was needed to fund the deficits and a cash buffer was built up that has been maintained as part of the EU/IMF programme.  The general government debt is a gross measure so no allowance is made for assets even though this cash could be used almost immediately to reduce the debt by that amount.

The composition of the general government debt was provided in this recent PQ to Michael Noonan.

General Government Debt 2011

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