Despite a £400 million increase in the National Debt last year, Ireland remains firmly placed for membership of the European single currency, with the surge in economic growth in recent years meaning that the country's debt compared to Gross Domestic Product is now well below the European average.
According to the National Treasury Management Agency (NTMA), Ireland's debt/GDP ratio at the end of 1997 is expected to be 67 per cent compared to 73 per cent at the end of 1996. Ten years ago, Ireland had a debt/GDP ratio of more than 140 per cent.
Membership of European Monetary Union requires countries to have a debt/GDP ratio of 60 per cent, or to be on target to reach that requirement with a sustainable fall in the ratio towards the target level. On that basis, Ireland is well set to meet the Maastricht criteria.
Compared to other aspiring members of EMU, Ireland also compares favourably, with our 67 per cent debt/GDP ratio not far above Germany's 62 per cent and France's 57 per cent.
Countries with far more ground to make up to qualify for EMU include the Netherlands with a debt/GDP ratio of 73 per cent, Sweden with 78 per cent, Italy with 123 per cent and Belgium with 125 per cent.
At the end of 1997, Ireland's National Debt was 92 per cent of the EU average, compared to 99 per cent at the end of 1996 and 150 per cent in 1992.
Figures from the NTMA show that the cost of servicing the National Debt came in £33 million below the 1997 budget estimate, while the NTMA was also able to replace £1.04 billion of foreign debt with pound debt.
The level of foreign debt, and indeed the total National Debt, would have been substantially smaller were it not for the fact that the weakness of the pound against sterling and the dollar added £612 million to the total debt as denominated in pounds. This foreign exchange loss more than offset a surplus on the Exchequer's account and meant that the overall level of the debt increased.
This was in contrast to 1996 when the debt level fell by £859 million due to the strength of the pound on the foreign exchange markets.
NTMA chief executive Dr Michael Somers said that about 83 per cent of the country's debt will be denominated in EU currencies when EMU becomes a reality. He rejected suggestions that the NTMA should accelerate the conversion of non-EMU foreign debt into euro-debt. "There's not enough non-EMU debt to suggest that we should speed up the conversion of foreign debt," he said, adding that major ratings agency IBCA believes it is appropriate for Ireland to have a portion of the national debt in non-EMU currencies to allow for currency hedging.
Dr Somers also rejected suggestions that the country should speed up the repayment of debt. "Do we really want to squeeze ourselves unduly?" he asked, adding that the most important figure was not the actual size of the debt, but the debt/GDP ratio which is falling sharply and compares respectably with other countries. Dr Somers declined to be drawn on the level of short-term interest rates, which is the preserve of the Central Bank. But he drew attention to the fact that the yield on Irish 10-year bonds was now within 0.21 of a percentage point of German 10-year bond yields while Irish three-month interest rates were far higher than German short-term rates - 6.1 per cent compared with 3.7 per cent.
The expectation is that EMU will see Irish short-term interest rates converge on German levels, with Irish rates possibly falling by 1.5 per cent and German rates rising by 0.5 per cent in the first half of next year.
