Wednesday, February 5, 2014

Why can’t we repay the IMF early?

A recent PQ set for Michael Noonan provided some interesting details on Ireland’s official loans.

Ireland has borrowed €22.5 billion from the IMF in 12 loan tranches and these will be amortised (paid back in instalments) in varying amounts from July 2015 to December 2023 when the final payment on the last tranche drawn down will be made.  Here are the individual loans from the IMF.

IMF Loans

The weighted average life across all the loans is 7.3 years. 

The response also tells us that the average interest rate on the loans is 4.16 percent (with an additional surcharge of 100 basis points applied to around one-fifth of the total amount due to the excessive size of Ireland’s loans relative to our IMF quota). 

The indicative seven-year yield on Irish government bonds is probably around 2.50 percent.  Here is an extract from the daily bond report for Tuesday 4th February published by the Irish Stock Exchange.

ISE Daily Bond Report

One problem the NTMA face as they plot an exit from the official funding phase of the programme is that we have very little need to borrow money.  A cash reserve of around €25 billion has been accumulated and over the next two years there is only one government bond due to mature (a €3.6 billion bond in February 2015).  Ireland’s near-term funding need for maturing debt are very low.

Debt Maturities 2014-15

Maybe we should consider borrowing some money at the yields shown in the previous table to further cement the view that we have exited the EU/IMF programme and use that money to repay the IMF loans.  We could borrow for seven years at 2.50 percent to pay back loans with an average life of seven years and an average interest rate of 4.16 percent.  The potential interest savings would be around €350 million per annum.

In a second PQ Michael Noonan was asked about this possibility.  He replied:

The question of early repayment of any one lender cannot therefore be treated in isolation from other lenders and market expectations for when programme loans are due to be repaid.

The early repayment of, for example, IMF funds would trigger automatic mandatory proportional early repayments to the EFSF, EFSM, United Kingdom, Kingdom of Sweden and Kingdom of Denmark. This would apply in respect of each of the programme funding partners.

So early repayment of the shorter-duration, higher-interest IMF loans would automatically trigger proportionate repayments of the longer-duration, lower-interest EU loans.  One issue is that it is not clear where the requirement for this mandatory repayments comes from.  It does not appear to be in the Memorandum of Understanding

The Minister has stated that these mandatory repayments are in place but it would be useful to know where this comes from.  I would guess that the IMF would be more than happy to see their loans made to Ireland repaid early.  So that leaves…


  1. Off the cuff, my answer would be that the MOU is with the Troika only. The linking of the UK and other loan facilities would be in the documentation specific to those bilateral arrangements.

  2. Of course, my answer above does not explain why the other Troika members would also need to be repaid if the IMF were to be paid off even earlier than the MOU actually specified. (Remembering that the MOU *always* envisaged that the IMF would get its money back first). If I get a chance, I might look again at the MOU. For now, I would simply observe that it would be normal for members of a lending consortium to incorporate some mechanism in the lending facility agreement to discourage selective treatment of lenders except as agreed in advance.