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Gross Government debt continued to decline during 2024 hitting just over €218bn, but given the higher interest rate environment, as well as the need to refinance, public debt and servicing costs are set to rise over the coming years, a new report has found.
According to the Department of Finance’s latest annual report on public debt in Ireland, the overall public debt declined from €220.7bn in 2023 to €218.2bn in 2024 which on a per capita basis amounts to €40,500 per person.
This is above the EU average of €32,500 per capita, however, Ireland is one of just six eurozone countries where the debt ratio has decreased since the beginning of the pandemic. Prior to the pandemic, in 2019, public debt stood at €203.4bn.
The report forecasts that public debt will decline further this year to €214.5bn before increasing again in 2026 to €216.1bn due to the need to refinance some of the debt.
“The effective rate of interest is set to rise in the years ahead. This is because bonds that were issued at near-zero rates during the pandemic will need to be rolled over; this refinancing will be undertaken at a higher-than-original cost,” the report said.
As of the end of June, €179bn worth of Government debt is medium- to long-term debt but €15bn is set to mature in 2026, with an additional €34bn due to mature by the end of 2029.
“This means that €49bn will need to be refinanced between now and end-2029. An average of €13bn is due to mature each year over the first half of the next decade. The remaining 30% of the outstanding stock of medium- to long-term debt is due to mature from 2036 and beyond,” the report said.
The average interest rate on the current stock of Irish debt stands at 1.5%.
Finance minister Paschal Donohoe said while the structure of Government debt has been insulated from higher interest rates in recent years “this will not last forever” and a “significant” portion of public debt will be exposed to higher interest rates in the coming years.
On top of this, the report also warns that debt servicing costs are set to rise over the medium term.
While the debt has been coming down, the report warns of a number of caveats which could impact the Irish economy and public debt over the coming years.
It warned that the budgetary surpluses of recent years are largely due to a “seven-fold increase in corporation tax receipts over the past decade” which comes from just a handful of companies. This puts the public finances at risk if there was to be a sudden shock to one or more sectors.
The report also warns that the prospect of trade frictions between the EU and the US “shines a light on how exposed the Irish economy is – from an employment and revenue perspective – to a small subset of sectors”.
In addition, Mr Donohoe warned that changes in the Irish economy, demographics, decarbonisation, digitalisation and de-globalisation will “all have adverse consequences for the evolution of public debt and the public finances as a whole”.
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