Sweden clears the way for Ireland to repay IMF loans early

Thursday 20 November 2014 16.43
Agreement has been secured from Europe to pay the IMF before it repays aid from the European bailout funds
Agreement has been secured from Europe to pay the IMF before it repays aid from the European bailout funds

The Swedish parliament has said Ireland may pay back part of its bailout loans early to the International Monetary Fund.

This was the final EU approval needed for the Government to begin repayment of the IMF loans.

Ireland secured agreement from Europe to pay the IMF before it repays aid from the European bailout funds and just needed the new Swedish government to ratify the amended terms in parliament before the deal is fully signed off. 

The Government wants to replace the more expensive IMF loans with cheaper market funding to reduce the carrying cost of a national debt that ballooned to 110% of annual output this year after the economy and the country's banking sector crashed. 

The National Treasury Management Agency raised €3.75 billion in 15-year debt earlier this month ahead of the formal ratification, taking advantage of low interest rates to sell the bonds at a record-low yield of 2.49%. 

The Government has estimated that it will save around €1.5 billion on debt-servicing costs over the next five years by refinancing €18.3 billion of its IMF loans, and had planned to do so in three equal tranches between now and 2016. 

However, a source familiar with the process said it was now likely that this would be done in two tranches rather than three and that a first repayment of €9-10 billion would be made after ratification from the Swedish parliament. 

The NTMA, which is fully pre-funded to the end of 2015 after resuming regular bond auctions this year, has also built up substantial cash buffers, which it plans to reduce and which will be used to cover the remainder of the refinancing, the source said. 

Finance Minister Michael Noonan has welcomed the Swedish Parliament's decision to agree to the waiver for Ireland’s proposed repayment of a portion of its IMF loan and the confirmation by the Swedish Government that was provided today. 

He said the country has already received confirmation of waivers from the UK and Denmark. 

"Our EU and bilateral lenders have been very supportive of the Government’s objective of improving Ireland’s debt sustainability since I discussed this issue with them in early September", the Minister said.

Mr Noonan added that significant progress has been made on this project since agreement in principle was secured at the informal Ecofin in Milan in September to replace expensive IMF loans with cheaper, low cost market funding.