Download Ireland: Exit from Crisis

Ireland: Debt Dynamics
John FitzGerald
Oireachtas Committee, 26th October 2011
www.esri.ie
Introduction
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
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Origins of Crisis
Tackling the Crisis
Exit from the Crisis

Everything depends on solving Euro zone crisis
National Debt, Gross
Fiscal Action, € billion
Revenue
Expenditure
of which Capital
Total
Per cent of 2010 GDP
2008-2010
5.6
9.2
1.6
14.7
10%
2011
1.4
3.9
1.9
5.3
3%
2012
1.5
2.1
0.4
3.6
2%
2013
1.1
2.0
0.4
3.1
2%
2014
1.1
2.0
0.4
3.1
2%
How much to do in 2012? €3.6 billion or €4 billion?
2011-2014
5.1
10.0
3.1
15.1
10%
Exit from the Crisis
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Permanent loss of output
Real depreciation through cutting costs
Exports had a “good” crisis.
Balance of Payments surplus – rising



Major changes in private sector balance sheet
When will private balance sheet be restored?
Consumption and investment eventually rise

Domestic demand is more employment intensive
Balance of Payments Surplus
General Government Deficit
Borrowing - FLOWS:
A. General Government deficit, €bn
% of GDP
Primary Balance , €bn*
% of GDP
Debt interest, €bn
% of GDP
B. Bank recapitalisation, €bn
C. Change in liquid assets €bn
cash balances
NPRF
Total New Borrowing €bn (A+B+C)
2010
2011
2012
2013
2014
2015
49.9
32.0
44.9
28.8
5.0
3.2
15.1
9.6
9.7
6.2
5.4
3.4
17.0
-8.8
1.2
-10.0
23.3
12.6
7.8
6.3
3.9
6.2
3.9
0.0
-2.3
-2.3
0.0
10.3
10.5
6.2
1.9
1.1
8.5
5.1
0.0
-4.3
-4.3
0.0
6.2
6.3
3.6
-2.9
-1.6
9.1
5.2
-3.0
0.0
0.0
0.0
3.3
3.2
1.7
-6.3
-3.4
9.5
5.2
0.0
0.0
0.0
0.0
3.2
Government Borrowing, % of GDP
2010
2011
2012
2013
2014
2015
Alternative
32.0
9.6
7.8
6.2
3.6
1.7
Dept. of Finance
32.0
10.0
8.6
7.2
4.6
2.8
Alternative assumes:
•
The reduction in the interest rates of July 2011
•
Lower than expected cost of bank recapitalisation
Debt /GDP Ratio
Preparing to Return to Markets
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Funded till 2013
What are funding needs post 2013?
What will be the Euro area background?
Debt Repayment as of mid-2011
Conclusions
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Risks
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Everything depends on Euro zone stability
Strategy for Irish return to markets 2013?
To do on banks:
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Wean off ECB
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Deleverage
Sell the banks to reduce debt
Most important of all
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Return to growth