THE GOVERNMENT HAS been urged to be “prudent” in October’s Budget by Acting Governor of the Central Bank, Sharon Donnery.
In her annual pre-Budget submission letter to the Minister for Finance Paschal Donohoe she said such an approach will be “critical” to ensure Ireland has “room to manoeuvre” and is buffered against any future downturns in the economy.
However, if windfalls are going to be to be used, they should be used to reduce Ireland’s debt, which stands at just over €200 billion.
The national debt rose to €206 billion last year, an increase of €5 billion, according to a government report published this month.
The annual report on Public Debt states this is the equivalent of €42,500 for every person living in the State, one of the highest in the OECD.
The national debt is about four times what it was before the recession.
The Central Bank advice follows on from the National Treasury Management Agency (NTMA) stating that the chances of a recession in Ireland are 100%.
National debt
The acting governor noted the importance of reducing public debt in the current favourable financial market conditions, stating that fiscal windfalls, including those from corporation tax, could be ring-fenced to play a part in reducing the public debt burden.
She urged that earlier proposals made in Budget 2017 to introduce an Irish specific debt target of 45% of GDP “should be formalised by the government as soon as possible”.
Addressing the “specific substantial challenges” facing the country, she said the potential impact of a no-deal Brexit would have an immediate and severe impact on almost all areas of economic activity.
She said certain sectors such as agriculture, food production and manufacturing which have particularly strong links to the UK will be “disproportionately affected by the imposition of tariffs and non-tariff barriers such as increased border delays and significantly increased administrative requirements for firms exporting goods both to the UK as a final destination and through the UK to continental Europe”.
If a disorderly Brexit can be avoided, the economy is expected to perform strongly in 2019 and 2020. However, she warned the government that there is a “material risk that continued expansion would give rise to overheating pressures”.
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