Politics

‘Era of free money’ for State borrowing coming to an end, PAC told

The “era of free money” relating to State borrowing on worldwide markets is “very much coming to an end”, the Dáil’s spending watchdog has been informed.

The Public Accounts Committee (PAC) heard that the price of borrowing has “risen substantially” from round zero per cent curiosity with bond yields standing at 1.7 per cent on Thursday.

Eire’s nationwide debt was €237.2 billion on the finish of 2021, up from €219.5 billion 12 months earlier as spending on pandemic-related helps drove borrowing.

John Hogan, secretary basic of the Division of Finance informed the PAC that, regardless of the altering surroundings on worldwide markets, Eire is “generally well placed to deal with the issues that are now arising”.

He stated this was as a result of the Nationwide Treasury Administration Company (NTMA) has been engaged in “a significant reprofiling and elongation of our debt and associated with that by virtue of benefitting from the low interest rate environment”.

He stated this has had “a material impact on the cost of servicing the debt”.

Mr Hogan additionally stated there was motion in rates of interest within the United States and the European Central Financial institution has “already indicated some of the policy options that they intend to take over the next while very much linked to the winding down of asset programmes that have been instrumental in terms of the moderation of the international lending environment”.

He added: “What might need been described because the period of free – or greater than free – cash could be very a lot coming to an finish.

“We’ve been mindful of it. We’ve been indicating it in our documentation over the last number of year. We’ve been planning accordingly.”

He stated the work of the NTMA has “put us in a good position”.

Mr Hogan’s remarks got here in response to questions from Fianna Fáil TDs James O’Connor and Cormac Devlin.

The Division of Finance’s chief economist John McCarthy informed the PAC that in 2020 “a lot of the debt was taken on at in or round zero per cent.

“It obviously differed from debt instrument to debt instrument but the vast majority of debt was at zero per cent.”

He stated this was as a result of ECB was “essentially backstopping debt issues in all Euro area member states” by quantitative easing.

He added: “That did proceed in 2021 because the ECB continued to vacuum up a variety of the extra debt issuance however that’s now being discontinued.

“We’re transferring from quantitative easing to a quantitative tightening house.

“So the cost of borrowing – 1.7 per cent this morning – has risen substantially.”

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