How much is our National Debt?

Damien Kiberd had an article in yesterday's Sunday Times entitled:

Our debt is heavier than you think
Here are selected quotes and I compiled the table from his summary and conclusion.

The ratio of General Government Debt to GDP was 94.2% at the end of 2010.

An estimated €51 billion in emergency liquidity provided by the Central Bank. This money may not ultimately be recoverable.

Any net liability of NAMA

Any special government guarantees provided to illiquid banks to cover freshly created bonds that are then provided as collateral to the ECB

Any residual liabilities that may be traced back to the exchequer arising from its ownership of the banks or its provision of blanket guarantees in September 2008

The ECB is owed €97 billion by the same banks

The capital base of the Central Bank is €1.5 billion
The capital base of the ECB is €10 billion

The gross(pre-haircut) value of loan acquired by NAMA will be €86 billion ( €50 to date + €18 to go in smaller loans)

Face value of NAMA bonds : "could be in excess of €40 billion"

The banks are creating €20 billion of "government guaranteed uncovered bonds" These are used as collateral for borrowing from the ECB. These are used to refinance existing debt

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I will take this line by line.

I don't know where he gets the Current Gross Debt of €160 billion. According to the [broken link removed], The General Government Debt was €150 billion at the end of 2010. We have €20 billion of cash, so the true debt at 31 Dec 2010 was €130 billion.

The Central Bank has provided €50 billion to the banks to replace deposit outflows. The banks are paying interest on this. Presumably the Central Bank is paying interest on this as well, although I don't fully understand the mechanism. Yes, we have a liability. But €50 billion "borrowed" to provide liquidity to the banks is completely different from €50 billion borrowed to fund the exchequer deficit.

The bailout money of €67 billion will be borrowed over the coming three years. €40 billion will be exchequer deficit. €27 billion will be for repaying maturing government debt and Promissory Notes which are already included in the €150 billion.

The NAMA "bill" of €40 billion is not a "bill" as such. NAMA has paid €30 billion for loans with a face value of €50 billion. In time, these loans may realize €30 billion. It may be less, it may be more. We do have a liability for these, but we have a matching asset.

New use own bonds were used to buy back debt at a discount. Presumably it was used to buy back a mix of guaranteed and unguaranteed bonds. As such, it probably did not increase the government exposure by very much.


We have a serious borrowing problem. Most of the existing borrowing is due to the exchequer deficit i.e. living beyond our means. We have a very large exposure due to our blanket guarantee - probably around €400 billion. We should not have given it. It is very serious. We should not be minimising it. But we should not be grossly overstating the problem either.

Brendan, just on the guarantee, according to the NTMA at the end of September there was about €146 billion issued under the ELG scheme. Of this, about €116 relates to deposits. The Central bank activities are much more difficult to examine because they are allowed to publically comment on what they are doing or how they do it.

I applaud what you are trying to do. I will try and come with some figures to help. One difficulty I have with commentators and politicians is that they are picking and choosing what figures to use. It suits them to throw in NAMA liabilities and the amount of guaranteed debt the banks have issued as examples of how high our debt is wihout looking at the other side of the balance sheet i.e. NAMA assets and the banks assets that would be used before the guarantee was called upon.

This is my summary

Summary of our national debt position


Notes
2 “ General Government Debt, which is the standard measure used within the EU for comparative purposes, is a gross measure and does not allow for the offsetting of Exchequer cash balances. As well as the National Debt it includes the Promissory Notes issued to Anglo Irish Bank, Irish Nationwide Building Society and Educational Building Society, Local Government debt and debt of non-commercial State Bodies”

3 Central Bank Liquidity Funding
This money actually earns us interest. It is not secured on assets, so we could lose it if all the banks go bust. But the same people who argue this, argue that the NPRF money invested in AIB and Bank of Ireland will not be recovered. This investment was to supercapitalize the banks to provide a buffer against future losses. It is very unlikely that this money will not eventually be repaid to the Central Bank

4 NAMA
NAMA is a ten or twenty year project. It’s impossible to predict the outcome. It may make a profit or it may make a loss. When it was first proposed, it was argued that NAMA would overpay for the loans it was buying. It has imposed severe haircuts so it’s unlikely to have overpaid.

5 The EU-IMF funding of €66 billion
This does not show up in the above table as it’s in the future. €40 billion relates to funding our exchequer deficit over the next three years. €26 billion will be used to replace maturing debt and pay the Promissory Notes which are included in the General Government Debt figure at 2 above.

6 The National Pension Reserve Fund

From the [broken link removed]


.

The NPRF will provide up to €10 billion of the State’s €17.5 billion contribution to the €85 billion EU-IMF programme. After an NPRF contribution of €10 billion, the value of the assets remaining in its Discretionary Portfolio would be approximately €4.9 billion, which would include capacity for the proposed Investments in Irish infrastructure assets and water metering services as set out in The National Recovery Plan 2011-2014.

Brendan Burgess said:

I will take this line by line.

The Central Bank has provided €50 billion to the banks to replace deposit outflows. The banks are paying interest on this. Presumably the Central Bank is paying interest on this as well, although I don't fully understand the mechanism. Yes, we have a liability. But €50 billion "borrowed" to provide liquidity to the banks is completely different from €50 billion borrowed to fund the exchequer deficit.

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On the "50 bn" of loans from the Irish CB to the comm banks - these loans are assets on the CB balance sheet, which has massively expanded.

See here, and check the data in the annexe:

[broken link removed]

Clearly, the liability side of the CB's balance sheet has also grown.

However, as far as I know, this amount is not owed to anybody else, as the CB can simply create extra liability, i.e. money.

This is why this ELA scheme has been described as Quantitative Easing.

In my understanding of the Euro mechanics, the Irish Central Bank is a branch of the ECB but cannot issue money - only the ECB can do this - so the Irish CB has borrowed the money from the ECB.

But I could be wrong.

I agree that it would be nice to have a clearer picture of the debt position.

This confusion alone justifies the setting up of this forum.

Brendan