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Reputation restored: by Michael Noonan, TD, Minister for Finance

I welcome this special report on Ireland by EuroWeek. It comes at a time when Ireland has succeeded in returning to the debt markets and is on course to exit the EU/IMF programme of financial assistance at the end of 2013.

The Government’s primary policy objective is to grow the economy and to foster the conditions for increased employment. In 2012 Ireland recorded its second straight year of real GDP growth, following the deep recession that began in 2008. Last year, Ireland was among the fastest growing euro area economies and consensus forecasts predict that trend to continue in 2013 and 2014. 

The National Treasury Management Agency (NTMA) has been active in the long-term and short-term debt markets in recent months and investors have responded enthusiastically. A total of €2.5bn of a five-year benchmark bond was sold at a yield of 3.32% in January 2013 with broad-based demand skewed towards real money buyers. Ireland then issued €5bn of a  new benchmark 10 year bond in March 2013 at a yield of 4.15%, the first new 10 year issuance from Ireland since January 2010. More than 400 institutional investors participated — mainly from outside Ireland. These transactions represent a significant return by Ireland to normal market funding and the NTMA plans to further consolidate this progress in the second half of 2013 and beyond. 

The NTMA has been very active in meeting investors on roadshows to inform them of the steady improvement in Ireland’s creditworthiness. Of course there has been a flow of positive news on Ireland’s debt position and the Irish economy generally in recent times. The deal, following the liquidation of the wind-down bank IBRC in February, to replace the promissory notes which had been issued to IBRC with much longer dated Irish Government bonds and the maturity extensions on the loans from the EFSF and EFSM by seven years, have reduced Ireland’s funding needs by some €4bn each year over the next decade or so, making Ireland’s debt position more sustainable. The sale of the State’s holding of €1bn in Bank of Ireland Contingent Capital Notes and of Irish Life has also improved the funding position.

In relation to the public finances, our primary aim remains the correction of the excessive General Government deficit by 2015. We have met, and in 2011 and 2012 outperformed, all our interim deficit targets and the Government remains committed to bringing the deficit below 3% of GDP within the stated time horizon.  Ireland is forecast to achieve a primary budget surplus (excluding interest payments) in 2014 for the first time since 2007, of sufficient size to stabilise the debt to GDP ratio. Beyond 2015, fiscal policy in Ireland will be framed in line with the requirement to make sufficient progress towards the medium term budgetary objective and to put the public debt to GDP ratio on a downward path. 

Bank deleveraging is almost complete: this will mean that the domestic banking system is the correct size for the economy. The Eligible Liabilities Guarantee (ELG) scheme has ended for new bank liabilities and all three of the covered banks have returned to market-based funding. Covered banks’ usage of ECB funding facilities has fallen significantly and is down from a peak of €156bn in February 2011 to €39bn as of April 2013. The covered banks have significant capital buffers available for future potential losses. Personal insolvency legislation has been reformed and the Central Bank is working to ensure a sustainable resolution to the mortgage debt overhang, in part by setting specific time-bound restructuring targets. Options for the State to exit its investments in the banks are constantly kept under review.

2012 was a year of further substantial progress for NAMA. It reported a profit for the taxpayer net of impairments for the second year in a row and is set to continue on this path. It has generated more than €12bn in cash from April 2010 to end May 2013. It is using this cash to pay down NAMA’s debt on schedule — €6.5bn has been repaid already — and, where appropriate, to provide funding to protect and enhance the value of its assets, so that it can maximise the amount that it ultimately will recover for the taxpayer.

More generally, the Government continues to look at ways to develop the real economy and to restore competitiveness. Ireland’s price level and its unit labour costs have fallen significantly relative to its trading partners, helping to turn a large Balance of Payments deficit into a surplus. The inflow of foreign direct investment in 2012 was the highest for a decade and the pipeline is healthy. Public sector pay will be further reduced. Investment in infrastructure is set to expand in 2014 and 2015, as Exchequer funding is supplemented by Public Private Partnerships. Pillar banks have been set targets to lend to small and medium-sized enterprises (SMEs) in order to ensure that there is adequate credit for this sector to grow and to create employment. 

Under the Ireland Strategic Investment Fund (ISIF) initiative, the Government is re-orienting the National Pensions Reserve Fund and making its €6.4bn of resources available for commercial investment in areas of strategic importance to the Irish economy. The ISIF will leverage its resources by attracting co-investment from third-party investors and will seek to recycle its investments over time in line with its new mandate.

Ireland has progressively restored its reputation in financial markets over the last two years. Investors have responded by investing at yields below those which could be obtained before the financial crisis. The credit rating agencies remain cautious, because Ireland’s prospects are closely tied to developments in the broader euro area, but, Ireland’s ratings have stabilised. It is clear that normalisation is well underway. I commend this supplement to you and hope that you find it useful and informative.  

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