IRELAND COULD SAVE €2.1 billion repaying its debts early delivering the government a big cash windfall ahead of the budget.
The figure is €600 million up on the €1.5 billion estimate Finance Minister Michael Noonan was quoting last week after striking a deal with European financial mandarins to pay back Ireland’s more expensive loans early.
According to number-crunching from the so-called “troika” of the European Union, European Central Banks and International Monetary Fund that backed the country’s bailout, Ireland could save the extra cash thanks to the lower rates it can now borrow money at.
“In light of currently very favourable market conditions an early repayment of IMF credit can generate significant savings on government interest expenditure for the Irish sovereign,” a report from the troika said.
And they worked that out how?
Based on current average 10-year borrowing rates of 1.88%, Ireland would save €2.1 billion – or 1.2% of the country’s 2013 GDP – over the next seven years.
The biggest savings would come over the next four years, delivering the government a cash bonanza for its upcoming budget.
Even if borrowing costs went up 0.5%, the savings would be €1.8 billion.
Money for nothing, debts for free
The plan is for Ireland to pay off its €22 billion IMF bailout debts first using money it can now raise cheaply on the bond markets.
The country’s ability to borrow at low rates comes thanks to its improved economy and much-improved credit risk rating, meaning it will have to pay little interest on its government-backed securities.
Late last week the National Treasury Management Agency (NTMA), which is charged with borrowing money on behalf of the government, auctioned off €500 million in three-month bonds with a yield of 0%.
The return means investors will get back what they pay on the bonds – effectively “parking” their money in Ireland and lending the country money for free.
READ: The IMF says we can pay back out loans early – but what does that mean?
READ: Good news: Ireland passes first post-bailout review
To embed this post, copy the code below on your site
have your say