NTMA Delivers 2018 Midyear Update

09 Jul 2018

The National Treasury Management Agency (NTMA) today published its 2017 Annual Report and delivered a midyear update for 2018.

Comment by the NTMA Chief Executive Conor O’Kelly

“We have reached a late stage in the current investment and interest rate cycle that has provided such a supportive backdrop for the Irish economy and for the NTMA as the State’s debt manager. If the cycle is a 12-hour clock we are around 11 o’clock right now.

The NTMA’s market activity has reduced borrowing costs and extended the maturity profile of Ireland’s debt. This has resulted in Ireland now having one of the longest weighted average maturity debt profile in the Eurozone (11.2 years at end 2017, up from 7 years at end 2012).  The NTMA has also reduced the risk profile of Ireland’s debt by pre-funding in advance of significant debt redemptions and increasing its cash reserves. 

This will serve us well in the coming years. Almost irrespective of the external interest rate environment, we still expect Ireland’s annual interest bill to fall towards €5bn in the near term, from €6.1bn in 2017 and a peak of €7.5bn in 2014.

We are also benefiting from the fact that investors have, in effect, reclassified Ireland as closer to the Eurozone core than the periphery. This reflects the credibility that Ireland’s policymakers have built with market participants. The impact of this reclassification is material. For example, Italy’s credit spread has risen by 100bps in the past three months.  The NTMA has borrowed €50bn since the beginning of 2015. If we had to pay an additional 100bps in wider credit spreads our interest bill would have risen by €500m annually. If Ireland had to pay an additional 100bps on the total stock of its debt of over €200bn, our annual interest bill would be €2bn higher.  

However, a number of commentators have talked about darker clouds coming on the horizon. As a signpost, the Federal Reserve is deep into its rate increasing cycle which often heralds global economic downturns. That may bring Ireland’s high stock of debt – which at €213bn is more than four times its 2007 level – into sharp focus. Whilst our debt ratios are improving, our total nominal debt is still rising as we continue to borrow to pay interest. This will limit our ability to absorb future shocks and therefore opportunities to pay down debt become even more important. 

One such opportunity that I’ve spoken about in the past is the State’s shareholdings in banks. The Government’s position is that it is not a natural holder of bank shares so it’s widely accepted in the markets that the Government selling down its shareholdings is a question of ‘when’ and not ‘if’.

Of course, while any decision on what to do with the proceeds from the sale of bank shares is a matter for the Minister, as long as the State is an owner of bank shares, the State has significant exposure to the stock market.

Further out, our sensitivity to rates in the more medium and longer term would be further reduced where we have taken advantage of debt repayment opportunities”.

Referring to the Ireland Strategic Investment Fund (ISIF), Mr O’Kelly said:

“When ISIF was set up we initially targeted a co-investment rate of €1 for every euro invested by ISIF but our current rate is €1.7 for every euro invested. This means that the €3.8bn investment commitment from ISIF since 2014 has resulted in a total investment commitment to Ireland of €10.4bn as a result of ISIF’s ability to attract or ‘crowd in’ private capital. This investment is targeting businesses, infrastructure and projects for which private capital is not readily available. 

An example is ISIF’s focus on the delivery of residential housing. By end June 2018, the ISIF had committed over €725m to residential housing, up from €526m at year end, in platforms that are targeting delivery of 15,000 new homes by 2021”.

Comment by the Minister for Finance, Paschal Donohoe TD:

“Today’s launch of the annual report for 2017 is an opportunity to reflect on the valuable work that the NTMA does on behalf of the State in terms of managing our national debt but also across all of its business units as highlighted in the report.

We have made a great deal of progress in restoring both our public finances and our reputation and the NTMA’s actions in maximizing the interest rate environment to reduce our borrowing costs and extend the maturity profile of our debt is an important contribution to our national strategy”.

NTMA business units – key points:

·         We welcome the Minister for Finance’s statement last week on the completion of the Ireland Strategic Investment Fund (ISIF) Review. The Minister has asked us to focus on priorities that will support delivery of Project Ireland 2040 – including regional development, indigenous businesses and residential housing, which have been important sectors for ISIF to date – and to prioritise those parts of the economy adversely affected by Brexit and projects that address climate change.

ISIF is well positioned to deliver on these objectives. To date, it has acted as a catalyst for third party private sector co-investment in sectors or areas of the country where private capital hasn’t been flowing freely or plentifully.

When ISIF was set up we initially targeted a co-investment rate of €1 for every euro invested by ISIF but our current run rate is €1.7 for every euro invested. This means that the €3.8bn investment from ISIF has resulted in a total investment commitment to Ireland of €10.4bn.  

That investment has been focused largely on areas where there are capital gaps and where required finance is not readily available. 

For example, nearly half of the money has been invested outside of Dublin - in businesses, infrastructure and projects that would otherwise struggle to attract market investment or where private capital would be a little more reluctant to go. In the residential housing sector, which continues to experience a shortage of capital, ISIF has committed over €725m to platforms that are targeting delivery of 15,000 new homes in the main urban centres by 2021.

·         The National Development Finance Agency is supporting delivery of PPP Projects in the education, health, justice and housing sectors with an estimated total capital value of €1.5bn. It is providing financial advice on PPPs and other infrastructure projects with an estimated total capital value of €5.5bn.   

·         NewERA continues to be a very important in-house provider of corporate finance expertise for the State and that’s being recognised in the way that the State continues to add to its remit and gives it more and more advisory and shareholder management roles.  

The principle behind the establishment of NewERA is that the State can have ongoing access to this expertise and a shareholder management perspective all under one roof. The benefit of this is widely recognised both in Ireland and in other countries and is reflected in more State bodies being added to NewERA’s advisory mandate including transport assets. 

  • The State Claims Agency continues to have a complex and diverse portfolio of claims to manage and a very significant mandate of improving risk management practices throughout State bodies.

It is a portfolio that’s getting bigger and bigger in line with additional mandates being given to it by the Government – it now has close to 150 State bodies or agencies within its remit.

Between clinical claims and general claims the SCA is now managing just under 10,000 live cases with an estimated outstanding liability of €2.7bn – and of course included within those 10,000 are the 38 claims that have been made to date relating to cervical cancer screening services.    

Managing these and other cases often requires exceptional levels of sensitivity to ensure that the SCA carries out its statutory role in a manner that recognises the distress and trauma that has been suffered by people who make claims against the State or State bodies. The SCA walks a fine line in getting that balance right in circumstances that are often very difficult and tries to do that as sensitively as possible.    

  • The NTMA has also been playing a role in the recovery process of the alleged State Aid from Apple. We have assisted the State in putting in place what is quite comprehensive but complex infrastructure to manage the Apple recovery.

At the request of the State we managed the procurement processes for the appointment of custodians and investment managers and, as the Minister said recently, the first payments due from Apple have been received, with the remainder due in stages.

That money remains in escrow and will be managed in a way that comprehensively protects the State from financial risk, which is a key requirement for the State.


Issued on behalf of the NTMA by 

Gordon MRM
David Clerkin
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