Debt and Interest (update)

A recent post looked at total debt and interest payments in the household, non-financial corporate and government sectors using data from the CSO’s Institutional Sector Accounts. There were some unanswered issues relating to the “interest paid” figure given for the three sectors in the accounts.

A quick query to the CSO has resolved this issue.  The interest paid figure in the ISAs is actually an adjusted amount where the adjustments is for Financial Intermediation Services Indirectly Measured (FISIM).

The interest amount in the ISAs is based on a "risk-free rate" or some variation thereof.  The remaining interest is considered a payment for service and appears elsewhere.  The CSO’s accounts include this adjusted amount as interest paid (D.41).

The actual interest paid (D.41g) is available from the Eurostat database and is used to create this graph.

In 2010, the total amount of interest paid was €16.2 billion.  This was 10.4% of GDP and 12.6% of GNP. 

As interest rates have fallen the interest paid by the household and non-financial corporate sectors have fallen. In 2010, the household sector paid €6.3 billion of interest (and received €1.3 billion).   In contrast the interest paid by the government sector has more than doubled in just two years and is set to be the largest amount in the coming years.

Two tables of comparative EU27 data for 2010 are also provided.

  1. Financial liabilities of household, corporate and government sectors
  2. Actual interest paid by the same sectors (incomplete)

As with the earlier post the measure of debt is the sum of the following liabilities: currency and deposits (F2), securities other than shares (F3) and loans (F4).

As has been stated a number of times (and discussed here) in terms of total debt Ireland is the most indebted country in the EU.  In 2010, the total for the household, non-financial corporate and government sectors is 430% of GDP or 525% of GNP.  No other country is above 400% of GDP and the unweighted average for the EU27 is 245% of GDP.

However, when it comes to actual interest paid Ireland is not such an outlier.  In fact even with incomplete data there are four countries in which the three sectors combined paid more interest than in Ireland.  At 10.4% of GDP the interest paid in Ireland is one-fifth more than the 8.6% of GDP unweighted average for the 20 countries for which 2010 data is available.

The may be a number of reasons why we are paying less interest such as lower interest rates and impairment in the household and corporate sectors.  While the government can try to continually roll over the debt, the household and corporate sectors will try to repay the interest and capital.  The non-consolidated nature of the accounts means that the debt may not be actually owed to third parties.  This may be particularly true of the non-financial corporate sector, the debts of which make up more the half of the total debt figure for Ireland in the usual analysis.

The tables themselves are below the fold. 

The Irish Government’s Approach to the Euro Crisis

Paul Gillespie writes on this topic in the new issue of the Dublin Review of Books – his article is here.

The public sector pay gap in a selection of Euro area countries

The Irish data are compared with other countries in this ECB study.

Economic Adjustment Programme for Ireland – Autumn 2011 Review

DG ECFIN’s latest report is here.

Summary:

This paper reports on the joint fourth EU-IMF review of policy conditionality under the financial assistance programme to Ireland (updated programme documents are presented in an annex).

Ireland’s 2011 growth forecast has been revised upward, thanks to a stronger-than-expected performance in the first half of 2011, on account of strong exports (aided by progress in recovering the lost cost competitiveness), although domestic demand remains subdued, as much needed balance sheet repair continues. At the same time, the forecast for growth in 2012 has been lowered with risks tilted to the downside, reflecting softening global growth. Programme implementation remains strong: fiscal targets have been met or are on track to be met, ambitious consolidation plans based on sound measures have been announced for 2012-15, and important reforms are being advanced in the banking sector (e.g., the domestic bank recapitalization has been substantively completed) and other areas (e.g., presentation of bills to open up to competition hitherto sheltered sectors such as medical and legal professions and to strengthen the enforcement of competition law). The programme remains well-financed, and—thanks to the lower-than-expected fiscal cost of bank recapitalization—the programme envelope is now seen to cover financing needs until the second half of 2013, though the Irish authorities intend to re-enter the market sooner, to also keep a sufficiently large cash buffer for the post-programme period.

Going forward, continued strict programme implementation remains essential to buttress credibility in the policy framework and in the achievability of the programme consolidation objectives.

INET Interview with Stephen Kinsella

Stephen’s interview at the INET website is here.