Ireland's public debt declines to €223bn but risks persist
Michael Finance Mccarthy The And Department's Minister John Economist Chief Mcgrath
The Department of Finance is projecting Irish public debt to continue to decline over the coming years, but challenges around demographic changes as well as as issues arising from de-globalisation could see the debt increase again.
As of the end of 2023, gross public debt dropped to €223bn, which equates to about €42,000 per person living here. When the Government’s liquid assets are taken into account, the country’s net debt stands at €184bn.
Providing there are not any economic shocks, the department is forecasting the public debt to fall to €217.1bn by the end of 2026. Public debt peaked in 2021 at €236bn as a result of additional borrowing during the pandemic.
However, according to the department’s annual report on public debt, there are a number of challenges in the coming years that could put “significant upward pressure on the debt trajectory”.
Among these challenges is the ageing population and the growing number of retirees forecast over the coming years.
Department of Finance chief economist John McCarthy said at the moment there are four people working for every retiree and by 2035 that could decrease to three workers per retiree.
“In 2050, it will be two people working for every retiree,” he said, adding this would put additional pressure on the public finances even if the current level of service stays the same.
Among the other challenges the department cited include de-globalisation — which could lead to reduced tax revenue and slower productivity — as well as decarbonisation, that could lead to labour displacement and reduced tax intake.
It also cites increased digitisation, which might increase productivity but also reduce employment given the potential rise of AI.
Of the current public debt, most of it is locked-in at fixed rates. One-third of the total Government debt is due to mature between now and the end of 2028. The report outlines that €9bn of debt is due to mature this year, with a further €14bn next year.
Of the total gross public debt, €85bn has an interest rate of between 0% and 1%, while €77bn carries a 1% to 2% interest rate. The remaining €72bn has an interest rate of between 2% and 6%.
“Given the shift in the interest rate environment over the last two years, the refinancing of this maturing debt is likely to come with higher debt servicing costs,” the report said.
According to the report, about €1 in every €40 the Government spends goes to servicing the interest on public debt, which is down massively from the €1 in €8 spent in 2013.
Finance Minister Michael McGrath said a “significant” proportion of public debt was “exposed to higher interest rates in the coming years”.
In addition, Mr McGrath warned given the tax base is “relatively narrow”, the public finances remain exposed should there be shocks to corporation tax receipts, or product or sector-specific shocks which could potentially affect income tax receipts.