According to a recent study done, the Ireland government will be estimated to be able to absorb around 17% of the spike in the State’s level of debt predicted to occur with the pandemic. There is estimated to be a growth of €239 billion within the next two years as the economy continues to battle with COVID’s repercussions. This will not only affect government actions and reach into markets and industries but may mean that there will be uncertainties with regulations regarding COVID restrictions.
Overall, this means that there will be nearly €47,000 being owned by the government to international creditors for every citizen within the state by the end of 2020. This accumulates to billions of debt inherited by the government. This is not just Ireland, but many countries across Europe, driven mostly by the European Central Bank in its bond-buying programs.
Ever since the beginning of the pandemic, the Irish government has responded to its economic and social environment quickly in relation to countries globally and have set aside large series of supports to lessen its impacts on both its citizens and the markets. This means that there has been an increase in around €19 billion just in the last year.
With the pandemic, there has been lessening pressures for loaners to pay off their debts, and with the debt, the build-up has been a major rising issue in our economy. And leading to all that if there does no short-term fiscal support put in place soon. The economic upheaval will be more severe than imagined.
As for our current State’s debt-income ratio, it is not projecting in a healthy wat. Ideally, the ratio would be going in a downward trajectory and this, in turn, would reduce the vulnerability of public finances and the State’s economy to future shocks once the pandemic has passed. A way to approach this issue would be to balance the needs to both ensuring fiscal sustainability within the government, but also supporting the recovery of our market economically by slowly liftin COVID regulations as the market returns to normal.
As a summary, there were around 24 billion euros raised last year by the National Treasury at an interest rate of 0.02% last year. And the State’s 10-year bonds peaked at more than 14%. With that all, the National Treasury sold nearly five and a half billion euro worth of the 10-year bonds.
Lucas Zhang was a Finance major at Ohio State University. He writes about finance, mortgages, and technology for Irish Mortgage Brokers.