Ireland

Pages81-95

Page 81

The management of the national debt in Ireland was delegated to the National Treasury Management Agency (NTMA) by legislation enacted in 1990. This delegated authority includes issuance, secondary market activity, and all necessary ancillary activity, such as, for example, arranging for clearing and settlement.1

Debt Management Objectives and Coordination
Objectives of debt management

The key objectives of the NTMA in managing the national debt are, first, to protect liquidity to ensure that the exchequer's funding needs can be financed prudently and cost effectively and, second, to ensure that annual debt-service costs are kept to a minimum, subject to containing risk within acceptable limits. It must also have regard to the absolute size of the debt insofar as its actions can affect it (deep discounts and currency mix).

Although the broad objectives of debt management have remained more or less unchanged, the emphasis on how best to achieve these objectives has changed, particularly in response to Ireland's adoption of the euro.

Scope

Debt management activity covers both the issue and the subsequent management of the central government's short-term and long-term debt as well as the management of its cash balances. The management of the debt is concerned with both the annual cost of debt service, in the traditionally understood sense of measuring and controlling the total value of interest and debt issuance costs each year, as well as with the economic impact, over the life of the debt, of all debt management activity. This latter aspect of debt management is captured by measuring the net present value (NPV) of the debt and comparing it with a benchmark.

Coordination with monetary and fiscal policy

The annual debt service cost, in terms of cash flows, is a major part of the overall expenditure in the budget of the ministry of finance (MoF) and is framed to be consistent Page 82 with the general level of borrowing or surplus envisaged by that budget. Monetary policy is the prerogative of the European Central Bank (ECB), and before the introduction of the euro, it was under the control of the Central Bank of Ireland (CBI). Debt management policy is not coordinated with the ECB's monetary policy. Before 1999, neither was there any formal coordination of debt management policy with the monetary policy of the central bank, even though there was a nonstatutory exchange of information and views with the CBI on the main thrust of debt management policy. In managing the debt, the NTMA was conscious of the need to avoid any conflict with the central bank's monetary and exchange rate policies. The advent of the euro in 1999 ended the scope of and need for such policy sensitivity.

Treasury service and advice to other arms of government

The debt management activity of the NTMA relates only to the debt of the central government. The debt of other arms of the government, such as local government authorities, regional health boards, and state bodies, remains the responsibility of those bodies, subject to approvals and guidelines issued by the department of finance. The NTMA has been empowered, however, to offer a central treasury service, in the form of deposit and loan facilities, as well as treasury advice to a range of designated local authorities, health boards, and local education committees. It has also been authorized to advise ministers on the management of funds under their control and, where the requisite authority is delegated, to manage such funds on behalf of those ministers. The NTMA currently manages the assets of the Social Insurance Fund under such delegated authority. It has also been mandated to manage the National Pensions Reserve Fund under the direction of the National Pensions Reserve Fund Commissioners, who are appointed by the minister of finance.

Transparency and accountability
Relationship with the minister of finance

The minister of finance approves the budget for annual debt-service costs, and the NTMA is obliged under legislation to achieve that budget as near as may be. Its performance relative to this budget is reported to the MoF, as is the performance in NPV terms against a benchmark portfolio. However, all debt-service payments, including redemptions, are a first charge on the revenues of the government and, under the provisions of the legislation that authorizes the raising of debt, are not subject to annual approval by the minister or by parliament. The NTMA also reports to the MoF on the very broad outlines of its borrowing plans for each year, indicating how much it intends borrowing in the currency of the state and how much in other currencies. The minister gives directions to the NTMA each year in the form of widely drawn and prudentially intended guidelines covering the major policy areas, such as the mix of floating- and fixed-rate debt, the maturity profile, foreign currency exposure, and other financial data. The public auditor, the comptroller and auditor general, carries out an audit each year on the agency's compliance with these guidelines.

Role of debt managers and the central bank

The debt managers and the CBI have distinct and nonoverlapping roles from both a legal and an institutional perspective in that the central bank has no role in debt management policy. The introduction of the euro in 1999 did not essentially alter the relationship, except to the extent that it removed the necessity for the degree of informal exchange of information and views that had existed before that date in the interest of the smooth operation of both monetary policy and debt management policy. At present, the NTMA cooperates with the central bank's actions in implementing the liquidity management policy of the ECB by maintaining an agreed level of funds in the exchequer account in the central bank each day. The CBI also maintains the register of holders of Irish government bonds. In December 2000, the clearing and settlement function for Irish government bonds was transferred from the central bank to Euroclear.

Open process for formulating and reporting of debt management policies

The NTMA's annual report and accounts include a full statement of its accounting policies. In addition, Page 83 it publishes at the beginning of each year a calendar of its bond auctions for that year, together with a statement of the total amount of issuance planned for the year. The NTMA's bond auctions are multiple- price auctions and are carried out by means of competitive bids from the recognized primary dealers. At present, there are seven such dealers who are obliged to quote electronically indicative, two-way prices in designated benchmark bonds within maximum bid/offer spreads for specified minimum amounts from 8:00 a.m. to 4:00 p.m. each day. In addition, primary dealers are required to be market makers in Irish government bonds on the international electronic trading system, Euro MTS, and on the domestic version of it, MTS Ireland.

Public availability of information on debt management policies

The government's budgetary forecasts for the coming year and the two following years are published annually in December. These forecasts include figures for the overall budget surplus or deficit of the government for each year. The preliminary out-turn for the current year is also shown. In addition, the finance accounts published each year by the government contain detailed information on the composition of the debt, including the type of instrument, the maturity structure, and the currency composition. During the course of the year, the MoF publishes detailed information on the evolution of the budgetary aggregates at the end of each quarter, together with an assessment of the outlook for the remainder of the year. The NTMA publishes an annual report that contains its audited accounts as well as a description of its main activities. It also publishes information during the year on the details of all the markets on which it operates and the amount outstanding on the various debt instruments...

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