2. May 2011
Irish insolvency is now less a matter of economics than of
arithmetic. If everything goes according to plan, as it always
does, Ireland’s government debt will top €190 billion by 2014,
with another €45 billion in Nama and €35 billion in bank
recapitalisation, for a total of €270 billion, plus whatever losses
the Irish Central Bank has made on its emergency lending.
Subtracting off the likely value of the banks and Nama assets,
Namawinelake (by far the best source on the Irish economy)
reckons our final debt will be about €220 billion, and I think it
will be closer to €250 billion.
Prof. Morgan Kelly, “Ireland's future depends on breaking free
from bailout”, Irish Times, 7th May 2011
3. The Namawinelake Forecast
So general govt debt of €148bn in 2010
+ €43bn deficit 2011-2014
+ additional capital for banks (€35bn earmarked of which
€25bn is described as a contingency)
+ debt redemption nil (rollover)
+ NAMA €45bn (€40bn bonds including pyt for sub-€20m
exposures and €5bn development debt)
+ swapping of ECB/CBI ELA for national debt x,
So €271bn + x for ECB/CBI ELA swap for general government debt.
Obviously NAMA will have some value as will ELA and we start off
with some funds in the NTMA/NPRF so the net will be less than that ,
but I would have said €220bn as a rough ballpark.
www.namawinelake.wordpress.com, 8th February 2011
4. Reaction
“There are grounds for believing that Kelly’s estimate is wrong to
the extent of between €50 and €60 billion and that the real figure
will be closer to €190 billion.”
Antoin Murphy, “This time Morgan Kelly is wrong”, Sunday
Business Post, 15th May 2011
“For undisclosed reasons, he feels the resulting figure is too
optimistic and adds a further €30 billion as a contingency
provision. This brings his projection of the gross GGD to €250
billion at the end of 2014.
Kelly’s inclusion of €35 billion under this heading is double
counting.”
Tony Leddin and Brendan Walsh, “Clarity needed when figuring
out Government debt”, Irish Times, 20th May 2011
5. The ‘Kelly’ Approach
There is no double counting.
2010 GGD: €148 billion
2011-2014 Deficits: €42 billion
Bank Recapitalisation:€35 billion
NAMA: €45 billion
GROSS TOTAL €270 billion
Plus CB lending loss: €x billion
Less value of assets -€y billion
Projected 2014 Debt €250 billion
6. What is the reality?
What is the general government debt (GGD)?
What is in the GGD?
What is not in the GGD?
When is public debt ‘unsustainable’?
7. “We are where we are”
How did we get here?
Where are we going?
START: 2007 = €47 billion
MIDDLE: 2011 = €167 billion
END: 2015 = €??? billion
8. 2008 to 2011: From €47bn to €167bn
Four reasons:
1. Annual Deficits: €60 billion
2. Increase in Cash Balances: €14 billion
3. Bank Payments: €15 billion
4. Promissory Notes: €31 billion
2007 GGD of €47 billion plus this €120 billion
2011 General Government Debt = €167bn
9. What is in the General Government Debt?
The GGD is currently made up of:
- Government Bonds: €80 billion
- EU/IMF Loans: €40 billion
- Promissory Notes: €28 billion
- State Savings Schemes: €14 billion
- Other Debt: €5 billion
TOTAL: €167 billion
10. What is not in the GGD?
The following do not enter the GGD:
- National Asset Management Agency
- Irish Bank Resolution Corporation
- Commercial Semi-State Companies
- Central Bank of Ireland ELA
- Future Liabilities (pensions, aging costs)
11. What is not in the GGD?
What assets could give a measure of net debt?
- Cash: €18 billion
- NPRF: €5 billion
- “Viable” Banks
- AIB/EBS: 99.80% (NPRF)
- BOI: 15.10% (NPRF)
- IL&P: 99.25%
- Commercial Semi-States?
- Other Assets?
12. 2012 to 2015: From €167 bn to ???
What’s remaining?
1. Cumulative Primary Deficits: €5 billion
2. Further Bank Recapitalisation: €2 billion
3. Interest on National Debt: €31 billion
3. Interest on Promissory Notes: €5 billion
2011 GGD of €167 billion plus this €43 billion
2015 General Government Debt = €210bn
13. 2015 Government Debt
ITEM €billion
2007 General Government Debt 47
Accumulated Deficits 2008 to 2011 60
Borrowings for Cash Balances 14
Direct Payments to Banks 17
Promissory Notes to Anglo/INBS 31
Promissory Notes Interest to IBRC 5
Projected Deficits 2012 to 2015 36
2015 Projected General Government Debt 210
Cash Balance on hand 18
14. Breakdown of this €210 Billion Debt
2007 Pre-Crisis Debt: €47 billion
2008 to 2015 Deficits: €96 billion
Bank Related Borrowing: €53 billion
Cash Borrowings: €14 billion
TOTAL: €210 billion
15. Debt Developments in 2011
Some pieces of ‘good’ news:
1. Bank Recap Costs: €35bn versus €17bn
2. Reduction in EU interest rates: c.€1bn p.a.
3. ‘Double Counting’ error: €3.6 bn
16. Domestic Uncertainties
On the liability side:
1. Slippage in the annual deficits
2. Potential Losses on €30 billion of NAMA loans
3. Further losses in the banks
- AIB/EBS, PTSB, BOI
- IBRC
- Credit unions
4. Central Bank Liquidity: €66bn/€45bn
17. Debt Sustainability
What does sustainability mean?
Is there a sustainability threshold?
How you stop the debt ratio rising?
Will the Irish debt ratio stop rising?
