Imminent risk from Brexit - Last year saw first budget surplus since 2007 August 2019 - NTMA
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Imminent risk from Brexit Last year saw first budget surplus since 2007 August 2019
Index
Page 3: Summary
Page 8: Macro
Page 23: Fiscal & NTMA funding
Page 40: Brexit
Page 46: Long-term fundamentals
Page 57: Property
Page 64: Other Data
Page 76: Annex (GDP distortions explainer)
2
Summary Full employment as debt sustainability improves
Domestic economy growing: averaging around 4.5 per
cent from 2013-18
Dramatic drop in Employment (000s) well
True growth healthy
unemployment rate above 2008 peak
30% 18.0 200
25% 16.0 16.0 100
20%
14.0
0
15%
12.0
10% -100
10.0
5%
-200
0% 8.0
-300
-5% 6.0
-10% -400
4.0 4.6
2008 2011 2014 2017
-15%
2.0 Non-Construction Employment
Construction Employment
0.0
GDP Underlying* 2000 2004 2008 2012 2016 Total Employment vs 2008 peak
* Underlying series is modified final domestic demand (excludes inventories) 4
Primary surplus, improving debt dynamics and cash
balances provide protection
Five years of primary Ireland is improving its debt Cash-balance provides
surplus (€bn) dynamics by the month near-term protection (€bn)
10 20
€ Billions
Debt-to-GNI* 18
5 Gap year
(104% 2018, from 166% peak) 16 helpful
0 14
12
-5 Debt-to-GG Revenue 10
(251% 2018, from 353%) 8
-10
6
-15 4
Average interest rate 2
-20 (2.6% 2018, from 5.1%) 0
2019 2020 2021 2022 2023
-25
Debt Prefunded
2019f
2007
1995
1998
2001
2004
2010
2013
2016
Debt-to-GDP^ Expected Remaining 2019 issuance
GG Balance Primary Balance
(64% 2018, from 120%)
Debt Profile
^ due to GDP distortions, Debt to GDP is not representative for Ireland, we suggest using other 5
measures listed.
Main risks are external and outside of Ireland’s control
Brexit US Tax
“Hard” Brexit – end Oct. 2019 Ireland is still a “high beta” bet Corporation tax reform may
is next cliff edge - could reduce on the US economy, impact Ireland's economic
Irish growth to 0% in 2020. in particular its ICT sector. model in the medium term.
Employment might be up to 4% US is in the late stage of its The OECD BEPS II process is
less than in a benign scenario economic cycle, although this slated to report by end 2020
according to DoF/ESRI. may be extended by Fed policy
6
€12bn (of €14-18bn) issued in 2019 so far; well positioned
given prefunding and maturity lengthening
Pre-funded 10 years A+/A2/A+
Current cash balances cover all One of the longest weighted Ratings from main agencies
2019 redemptions and more average maturities in Europe
The remainder of this year’s NTMA used ECB’s QE to extend Ireland’s debt sustainability is
funding (at least €3bn) will debt maturity, reduce interest improving, although Brexit is
meet 2020 bond redemptions cost and repay the IMF loans holding back rating upgrades
7
Section 1: Macro Best measures - labour market and MFDD - show Ireland’s economy is in rude health
Labour market best illustrates Ireland’s growth story –
Ireland is at or very close to full employment
Unemployment rate: down to 4.6% Total employment back above previous peak
in July 2019 from peak of 16% as 160K non-construction jobs added on net
18.0 200
Thousands
16.0 100 2.3m people
employed
14.0
0
12.0
-100
10.0
-200
8.0
-300
6.0
-400
4.0
Unemployment 2008 2010 2012 2014 2016 2018
2.0 back to pre-crisis Non-Construction Employment
levels Construction Employment
0.0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Total Employment vs 2008 peak
Source: CSO 9
High-skill employment an important driver; though labour
participation rate has been slow to recover
High-skill employment has grown sharply Labour participation has not yet fully
recovered as young stay in school
6.0% 68%
4.0% 67%
66%
2.0%
65%
0.0%
64%
-2.0%
63%
-4.0%
62%
-6.0%
61%
-8.0% 60%
Rate inflated pre-crisis by
-10.0% 59% migrant construction workers
2008 2010 2012 2014 2016 2018
58%
High Skill Other Employment Growth 1998 2001 2004 2007 2010 2013 2016 2019
Source: Eurostat; CSO 10
High Skill jobs include the ISCO08 defined groupings Managers, Professionals, Technicians and
associate professionalsWages growth evident in 2018 but uneven across sectors
Wage growth a driver for increase in … but disparities remain across sectors
compensation of employees…
10% 8.0% 65
8% 7.0% 60
55
6% 6.0%
50
4% 5.0% 45
4.0% 40
2%
3.0% 35
0% 30
2.0%
-2% 25
1.0% 20
-4% 0.0% 15
Arts & Rec
Industry
IT
Fin, Insurance & RE
Total
Public admin
Transport/Storage
Wholesale/Retail
Prof, science & tech
Accom & Food
Health
Construction
Education
Admin & Support
-6%
-8%
-10%
2016
2010
2010
2011
2011
2012
2012
2013
2013
2014
2014
2015
2015
2016
2017
2017
2018
2018
2019
Hours worked Hourly wage
Employment Other Compensation 4Q average hourly earnings y-o-y Q1 2019
COE growth (y-o-y) 2018 average annual earnings (€000, RHS)
Source: CSO 11Despite being late cycle, inflation is low; Ireland’s Phillips
Curve might be starting to bite
Inflation (%) in Ireland similar to rest of euro At full employment, wage growth could be
area currently – Brexit ref. impact has gone an issue in 2019
4 12.0%
3 10.0%
y = -0.7385x + 0.0956
Nominal wage growth per head
2 R² = 0.8006
8.0%
1
6.0%
0
4.0%
-1
-2 2.0%
-3 0.0% Unemployment
breached 5%
-4 -2.0% barrier in early
2019
-4.0%
HICP Ireland HICP Euro Area 2.0% 5.0% 8.0% 11.0% 14.0% 17.0%
"Core" Ireland "Core" EA Unemployment Rate
Source: CSO, Eurostat Source: CSO, NTMA analysis; Non-Agriculture employment /wage
data on yearly basis (1999-2018)
12GDP distortions mean we need to look to other metrics;
Irish recovery evident when looking at GNI*
GNI* was €197bn in 2018; 7.3% higher than GNI* growth rate averaged 7.7% 2013-2018
in 2017 (current prices) (current prices)
350 40%
GNI* is 61% of
300 GDP 30%
250
20%
200
10%
150
0%
100
-10%
50
-20%
0
1995 1999 2003 2007 2011 2015
GDP GNI* GDP Growth GNI* Growth
Source: CSO 13
Note: See annex for discussion on the GDP distortions from 2015 onwardsWhen looking for price-adjusted timely data, modified final
domestic demand is the best measure
In real terms underlying growth in Ireland Unusually large changes in multinational
averaged 4.4% since 2014 stock levels distort the MDD measure
15% 15.0%
10% 10.0%
5.0%
5%
0.0%
0%
-5.0%
-5%
-10.0%
-10%
-15.0%
-15% 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Investment Consumption Govt
Modified Domestic Demand MFDD (MDD ex stocks) Stocks MDD MFDD
Source: CSO
Note MFDD measure used here includes private consumption, government consumption, building 14
investment, elements of machinery & equipment investment, elements of intangible asset investment.
See annex for more detail.Economy has been driven by multinational growth – in
particular ICT; sector grew 25% in 2018 alone
Breakdown of the Irish economy by sector – Information and communication sector has
Industry (pharma) and ICT are 40% of GVA seen exceptional growth in recent years
Other, 2.7% 30%
25%
P Admin, 20%
Educ & Industry,
Health, 27.4% 15%
11.9%
Prof, Admin 10%
and Support
, 12.0% 5%
0%
Financial, Construction
8.0% + Real Estate, -5%
9.6%
-10%
Dist, trans,
ICT, 14.5% -15%
hotels, rest.,
1997 2000 2003 2006 2009 2012 2015 2018
14.0%
ICT % of Economy (GVA adjusted for 2015 distortions)
ICT Sector (GVA 4Q y-o-y)
Source: CSO (2018)
Note GVA figures adjusted for distortions in 2015. A depreciation charge was subtracted from 15
industry GVA in 2015 and onwards to take account od multinational effects.Short-term indicators point to further growth, although a
little less hot than in the last five years
MFDD growth is heavily correlated with Ireland’s PMIs diverging in recent months,
employment growth as manufacturing slows around the world
15% 65
10% 60
MFDD y-o-y growth
5%
55
0%
50
-5%
45
-10%
MFDD = 1.362*employ + 0.004
R² = 0.86 40
-15%
-10% -5% 0% 5% 10%
Employment y-o-y growth Services Manufacturing Composite
Source: CSO; Markit, Bloomberg, Investec
Note MFDD measure used here includes private consumption, government consumption, building 16
investment, elements of machinery & equipment investment, elements of intangible asset investment. See
annex for more detail.Consumer spending growth consistent around 3% mark
Private consumption expanded by Services driving latest growth in spending
3.4% in 2018 – Q1 continued trend
12% 115 12%
9% 105 9%
95
6% 6%
85
3% 3%
75
0% 0%
65
-3% 55 -3%
-6% 45 -6%
1997 2000 2003 2006 2009 2012 2015 2018 1997 2000 2003 2006 2009 2012 2015 2018
Consumption Growth (4Q Y-o-Y) Services Durables
Consumption (€bns, RHS) Non-Durables Consumption
Source: CSO; Eurostat 17Crucially the recovery has not been driven by credit so far
Lending for house purchase only edging Modified investment led solely by building +
into positive territory recently construction; Mach. + Equipment sluggish
40 30%
35
30 20%
Economic
25 growth
20 2013-18 10%
15
10 0%
5
0
-10%
-5
-10
-20%
-15
2016
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2017
2018
2019
-30%
Credit advanced to Business (y-o-y) 2004 2007 2010 2013 2016 2019
Lending for house purchase (y-o-y) M+E B+C Intangibles Investment
Source: CBI; CSO 18
Note: Credit to business series excludes financial intermediation and property related credit
Note: Modified investment excludes impact of imports of intangible and aircraft leasing assetsPrivate debt levels remain elevated but Ireland has used
recovery period to repair balance sheets
Household debt ratio has decreased due to Legacy of crisis is on Govt. balance sheet
deleveraging and increasing incomes not the private sector’s
220 450%
200 400%
180
350%
160
300% Economic growth has
140 allowed private
120 250% sector deleveraging
100 200%
80
150%
60
100%
40
20 50%
0 0%
Debt (€Bns) Disposable Income Debt-to-Income Public and Private Private debt (% of Public debt (% of
(€Bns) Ratio (%) debt (% of MFDD) MFDD) MFDD)
2008 2013 2018 2003 2008 2013 2018
Source: CBI Source: CBI data
Note: Private debt includes Household and Irish-resident enterprises (ex. financial intermediation) 19
CBI quarterly financial accounts data used for household and government liabilities.
MFDD = modified final domestic demand. Used instead of GDP.Saving rate lower in recent years, facilitating consumption
and slower pace of deleveraging
Gross household saving rate lower than Interest burden down to below 4% of
peak but healthy 8-11% disposable income from peak of 11%
16 14%
14 12%
% of Disposable Income (4Q MA)
% of disposable Income
12 10%
10 8%
6%
8
4%
6
2%
4
0%
2 2003 2005 2007 2009 2011 2013 2015 2017 2019
0 Ireland EA-19
2002 2004 2006 2008 2010 2012 2014 2016 2018 Germany Spain
Italy Netherlands
Ireland EU-28 EA-19 UK
Source: Eurostat, ONS, CSO ; CBI, Eurostat NTMA calculations
20
Note: Gross Savings as calculated by the CSO has tended to be a volatile series in the past, some
caution is warranted when interpreting this dataExternal environment a bit more helpful for Ireland in 2019
2015 2016 2017 2018 2019f
EA Monetary Less Accommodative
Accommodative Accommodative Accommodative
Policy accommodative ?
Curve inversion,
US Monetary Accommodative Further
Accommodative Accommodative but easing
Policy but tightening tightening
possible
Stimulative due
Neutral 2nd
US growth Stimulative Less stimulative Stimulative to fiscal
derivative
package
Oil price Falling Falling Rising Falling No change y-o-y
Less favourable;
UK growth Stimulative Growth slowing Growth slowing Brexit crunch
Brexit impact
Possibly
Euro Growth Stimulative Stimulative Stimulative Slowing growth
improving
No change y-o-y
Euro currency Very Helpful Helpful Headwind Neutral
v. £; weaker v $
21Outside Pharma and ICT, export growth has slowed in
recent quarters; Ireland is living within its means
Goods exports outside MNC-dominated Current account is distorted heavily by
sectors were weak in 2018 (y-o-y change) MNEs: modified CA is consistent with GNI*
50% 20%
40%
15%
30%
10%
20%
10% 5%
0% 0%
-10%
Rebound in -5%
-20% Q1 19
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 -10%
Exports 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Chemical Products and Computer Services Current Account (% of GNI*)
Exports ex. Chem & Comp Modified Current Account (% of GNI*)
Source: CSO, NTMA calculations
Nominal values, exports excludes contract manufacturing.
Modified CA=CA less (IP Depreciation + Aircraft Leasing Depreciation + Redomiciled Incomes + R&D
Services Exports) adding back (Imports of related to Leasing Aircraft + R&D related IP and services 22
Imports). Significant caution should be exercised when viewing Ireland’s current account data. MNC’s
action distort metrics heavily.Section 2: Fiscal & NTMA funding Ireland is fully funded for 2019 having recorded a small budget surplus in 2018
€11.25bn issued in 2019 so far; well positioned given
prefunding and maturity lengthening
Pre-funded 10 years A+/A2/A+
Current cash balances cover One of the longest weighted Ratings from main agencies
2019 redemptions average maturities in Europe
Ireland’s debt sustainability is
The remainder of €14-18bn in NTMA has used QE period to improving, which suggests that
expected funding in 2019 to lengthen maturities, lower ratings may rise to double-A
fund 2020 redemptions interest costs and repay its IMF territory further barring shocks
loans early
24Maturity profile: IMF repayment and FRN buy-backs have
reduced refinancing risk; Green diversifies investor base
20
18
16
14
12
10
Billions €
8
6
4
2
0
Bond (Fixed & ILB) Bilateral EFSM EFSF Bond (Floating Rate) Green
Source: NTMA
Note: EFSM loans are subject to a 7-year extension that will bring their weighted-average maturity from
12.5 years to 19.5 years. It is not expected that Ireland will refinance any of its EFSM loans before 2027.
25
As such we have placed the pre-2027 EFSM loan maturity dates in the 2027-30 range although these may
be subject to change.The NTMA took advantage of QE to extend debt profile
Various operations have extended the …Ireland (in years) now compares
maturity of Government debt … favourably to other EU countries
20 12
€ Billions
18
16 10
14
12 8
10
6
8
10.1 10.0 10.0
6 8.3 7.7 7.7 7.6
4 7.5 6.9
4 6.4 6.5 6.1
2 2
0
2023
2019
2020
2021
2022
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036-40
2041-45
2046-50
2051-53
0
Debt Prefunded
Long-term Extensions since 2014
Govt Debt Securities - Weighted Maturity
Debt Profile EA Govt Debt Securities - Avg. Weighted Maturity
Source: NTMA; ECB *excludes programme loans. Ireland’s maturity including these 26
loans is still similarFunding strategy has lowered the State’s interest burden
NTMA issued €66bn MLT debt since 2015; Interest costs forecasted pre-QE to be
14.3 yr. weighted maturity; avg. rate of 1.1% c.€10bn; likely to be below €5bn in ‘19
6.0 18 10
€ Billions
5.5
5.0 15
8
3.9
4.0 12
6
2.8 10Y
3.0 9
12Y
15Y 4
2.0 1.5 6
1.1
0.8 0.9 1.1
1.0 3 2
5Y 5Y 10Y 7Y 5Y 10Y
8Y 10Y 16Y 30Y 10Y 20Y 30Y
0.0 0
0
2012 2013 2014 2015 2016 2017 2018 2019
2020
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2021
YTD
Other
Auction GG interest (€bns) SPU 2014 Estimates
Syndication
Weighted Average Yield % (RHS) 2019-2021 Latest Estimates
Source: NTMA, CSO, Department of Finance 27
Other issuance includes inflation linked bonds, private placement and amortising bondsThe State is funded three to four quarters in advance
€24
• The next redemption is in October. Cash
balances easily cover it.
€20 Other,
• In January 2019, the NTMA issued a 10 €5.0
UK €1.9
year benchmark bond. It raised €4bn at
€16 UK €1.6
1.123% yield.
Long
• In May 2019, the NTMA issued a 30 year €12 term
benchmark bond. It raised €4bn at 1.53%. Paper
Bond €16 Bonds
€8 €15.3 €13.1 €17.1
• In February, June and July, the NTMA Cash €13.1
auctioned a further €3.25bn across the Cash
2029, 2033 and 2037 bonds. €4
Other
EBR
• Other borrowing (such as non-comp) €2.1
€3.6
€-
brings the total to c. €12bn
Y/E 2018 Outflow Funding Y/E 2019 2020 Outflow
(€14-18bn)
Source: NTMA
• EBR is the Exchequer Borrowing Requirement (DOF estimate)
• Outflows, long term paper and end-year cash position are estimates for illustrative purposes.
• Cash balances excludes non-liquid asset classes such as Housing Finance Agency (HFA) Guaranteed Notes.
• Other outflows includes bond buybacks, switches, and contingencies.
• Other funding includes Retail (State Savings). 28
• Rounding may occur.Diverse holders of Irish debt – sticky sources account for
over 50%
Ireland roughly split 80/20 on non-resident “Sticky” sources - official loans, Eurosystem,
versus resident holdings (End ‘18) retail - make up over 50% of Irish debt
250
24% 200
33%
150
100
10%,
Resident 50
7%,
Resident 0
2%
23%
IGBs - Private Non Resident IGBs - Private Resident
IGBs - Private Non Resident IGBs - Private Resident Short term Eurosystem
Short term Eurosystem Retail Other Debt (incl. Official)
Retail Other Debt (incl. Official) Total Debt (€bns)
Source: CSO, Eurostat, CBI, ECB, NTMA Analysis
IGBs excludes those held by Eurosystem. Eurosystem holdings include SMP, PSPP and CBI holdings of
FRNs. Figures do not include ANFA. Other debt Includes IMF, EFSF, EFSM, Bilateral as well as IBRC- 29
related liabilities. Retail includes State Savings and other currency and deposits. The CSO series has
been altered to exclude the impact of IBRC on the data.Investor base for Government bonds is wide and varied
Investor breakdown: Country breakdown:
Average over last 5 syndications Average over last 5 syndications
2.5%
10.0% Ireland,
10.6% 8.2%
15.6% 36.0%
UK, 30.2%
Cont.
Europe,
41.8%
38.4%
6.7%
Fund/Asset Manager Banks/Central Banks Ireland UK
US and Canada Continental Europe
Pensions/Insurance Other Nordics Asia & Other
Source: NTMA 30Late cycle risks mixed for Ireland: yield curve sets
recession clock ticking but central banks are now easing
US yield curve has inverted (albeit only In Euro Area, PSPP re-investment continuing
slightly so far): will history repeat? as ECB eases with TLTROs
6% 35 3.5
€ Billions
5% 30 3.0
4% 25 2.5
3%
20 2.0
Re-
2% investment
15 1.5
spread out
1%
10 1.0
0%
5 0.5
-1%
0 0.0
-2%
-3%
1975
2002
1972
1978
1981
1984
1987
1990
1993
1996
1999
2005
2008
2011
2014
2017
PSPP IGB purchases (RHS)
US 10 year bond yield minus 3m Treasury bill yield Cumulative Purchases (LHS)
Source: DataStream, ECB 31
*Shaded areas indicate recessionary periods in the USIreland provisionally recorded a full budget surplus for
first time in 11 years in 2018
Gen. Govt. Balance from -12% to Revenue surge has helped Ireland balance
surplus (ex-banking recap) in 7 yrs the books since 2015 (€bn)
2% 100
0.0%
€ Billions
0.0% 90
0%
-0.3% 80
-0.7%
-1.0% -0.5%
-2% -1.2% 70
-2.0%
60
-4%
-3.7% 50
-6% -4.8% 40
Surplus is back
-6.4% 30
-8% due to CT windfall
20
-8.3% -8.4%
-10% -9.1% 10
0
-12%
2019f
2021f
2007
1995
1997
1999
2001
2003
2005
2009
2011
2013
2015
2017
-11.5%
-12.3%
-14%
2011 2012 2013 2014 2015 2016 2017 2018 GG Expenditure (ex-banking recap)
GG Revenue
GGB (% of GDP) GGB (% of GNI*)
GG Revenue 10yr rolling average
Source: CSO; Department of Finance 32Ireland has improved its debt dynamics: next step is to
follow others and run consistent GGB surplus
In recent years Ireland has run primary 2018 GGB Deficit/Surplus (% of GDP);
surpluses that reduced debt ratios Ireland middle of the pack in Europe
15% Luxembourg
Malta
10% Bulgaria
Germany
5% Netherlands
Greece
Sweden
0% Czech Rep
Slovenia
-5% Lithuania
Denmark
Croatia
-10% Austria
Ireland(GNI*)
-15% Poland
Portugal
EA
-20% Estonia
EU28
-25% Finland
Belgium
~ Slovakia
-30% Latvia
-40% UK
Italy
Spain
France
Romania
Primary Balance (% of GNI*) Cyprus
Debt Stabilising PB (% of GNI*) -4 -2 0 2
Source: CSO; Department of Finance, EU Commission forecasts, NTMA calculation 33
Note: Debt Stabilising primary balance is the primary balance it is necessary to run in a year to keep
the debt-to-GNI* ratio from rising given the average interest rate and growth in that year.Gross Government debt 64% of GDP at end-2018; 104% of
GNI*; reality somewhere in between
140% 180%
120%120% Debt-to-GNI* ratio is high
120% 111% 160%
but has declined quickly
104%
100% 33% 30% 140%
86% 32% 18%
77% 74% 120%
80%
19% 68%
62% 11% 9% 64% 61% 100%
9% 56%
60% 9%
25% 80%
40% 87% 90% 86%
80%
67% 66% 65% 59% 60%
55%
20% 37% 40%
0% 20%
0%
Net Debt/GDP Cash Balances/EDP assets 1995 1999 2003 2007 2011 2015 2019f
GG Debt/GDP Ireland (GNI*) Ireland (GDP)
Source: CSO; Department of Finance 34Alternative debt service metrics must also be used
for Ireland e.g. General Government debt to GG Revenue
400%
350%
300%
250%
200%
150%
100%
50%
0%
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020F
Ireland Spain Italy Belgium EA-19
Source: Eurostat, CSO; Department of Finance 35It’s best to analyse Irish debt with broad range of metrics
2018 GG debt to GG revenue % GG interest to GG rev % GG debt to GDP %
Greece 378.8% 6.7% 181.1%
Italy 284.5% 7.9% 132.2%
Portugal 279.2% 7.9% 121.5%
Cyprus 256.8% 6.7% 102.5%
Ireland 251.4% 6.4% 63.4%
Spain 249.8% 6.2% 97.1%
UK 218.3% 6.2% 86.8%
Belgium 197.4% 4.6% 102.0%
EA19 184.0% 4.0% 85.1%
France 183.9% 3.5% 98.4%
EU28 177.8% 4.1% 80.0%
Slovenia 162.8% 4.6% 70.1%
Austria 151.8% 3.3% 73.8%
Germany 133.7% 2.0% 60.9%
Slovakia 122.6% 3.2% 48.9%
Source: Eurostat, Department of Finance
* 2018 Interest % of GG Revenue would be closer to 6% excluding the interest paid to CBI (of which 80% is
returned to the State) , much of which accrues because of the holdings of the CBI’s legacy holding of Irish FRNs 36
** 107% Debt to GNI* ratio in 2018Snowball Effect (i-g) in Ireland’s favour given lower
average interest rate
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
GG Revenue Growth (g) Average Interest Rate (i)
Source: CSO; Department of Finance 37Corporation tax revenue keeps surprising positively, but
each year the concentration risk increases
Corporation tax receipts have more than Income tax base intact (% tax revenue) - not
doubled in four years comparable to narrowing of base pre-crisis
24% 12.0 45%
40%
20% 10.0
35%
16% 8.0 30%
25%
12% 6.0
20%
8% 4.0 15%
10%
4% Since 2014 c.40% of CT 2.0
paid by 10 companies 5%
0% 0.0 0%
2019f
2019f
2001
1993
2009
1995
1997
1999
2003
2005
2007
2009
2011
2013
2015
2017
1985
1987
1989
1991
1995
1997
1999
2001
2003
2005
2007
2011
2013
2015
2017
Corporation Tax (€bns, RHS) Income Tax
Corporation Tax (% of tax revenue) Capital Gains + Stamp Duty
Corporation Tax (% of GG Revenue) Corporation Tax
Source: Department of Finance 38Ireland: “A” grade from all major credit rating agencies;
Net debt level is a positive for Ireland relative to peers
Date of
Rating Long- Short- Outlook/
last € Billion 2016 2017 2018
Agency term term Trend
change
Currency and deposits
Standard June (mainly retail debt) 21.3 21.6 21.6
A+ A-1 Stable
& Poor's 2015
Securities other than shares,
exc. financial derivatives 124.2 130.7 134.2
Fitch Dec
A+ F1+ Stable - Short-term (T-Bills, CP etc)
Ratings 2017 2.4 2.9 3.1
- Long-term (MLT bonds)
121.8 127.8 131.1
Sept
Moody's A2 P-1 Stable Loans
2017 55.2 49.0 50.3
- Short-term 0.7 0.5 0.6
R-1 March - Long-term
DBRS A(high) Stable (official funding) 54.6 48.5 49.7
(middle) 2016
General Government Debt
200.7 201.3 206.2
EDP debt instrument assets
Jan. 24.9 27.3 28.6
R&I A a-1 Stable
2017 Net Government debt 175.8 174.0 177.6
39
Source: NTMA, CSOSection 3: Brexit “Hard Brexit” risk has increased as UK politics is polarised; end-October deadline
Brexit path is unclear – probability of a “Hard” Brexit has
risen with significant implications for Ireland
Cons Pros
• Less trade given lower demand from UK/ tariffs • Increased FDI, as multinationals avoid turmoil
Financial services (passporting lost by UK)
• Higher import prices possible in long-term: tariffs
Other multinationals - especially
may outweigh FX benefit. Non-tariffs costs could
IT and business services
also be significant.
• Commercial property occupancy could rise; there
• Regions suffer (agriculture, tourism), while Dublin
may also be an influx of well paid workers
may benefit (via FDI that leaves Britain)
• Fiscal help from Europe is possible
• Banking sector likely to suffer because
of its UK operations (especially Bank of Ireland) • Some trade offsets
Irish companies may steal EU market share
• Political economy (border, ally on direction of EU
economic policy) from British ones
41Whichever type of Brexit materialises, trade is likely to be
negatively impacted
Goods Services Total
Irish/UK trade linkages will suffer following Brexit
(2018) (2017) (2017) The UK is the second largest single-country
export destination for Ireland’s goods and
Exp. Imp. Exp. Imp. Exp. Imp. the largest for its services
At the same time, Ireland imports 20-25%
US 27.7 16.9 11.6 27.0 18.3 25.0 of its goods from the UK. Consumer goods,
capital equipment and inputs into the
UK* 11.4 21.9 16.4 9.3 15.1 13.7 export process will become cheaper thanks
to FX.
NI 1.6 1.6 n/a n/a n/a n/a There is significant employment related
to Ireland’s trade with the UK
The UK might only account for 15% of
EU-27 39.0 37.9 29.9 25.7 32.8 27.4
Ireland’s total exports, but Ireland is more
dependent than that, considering
China 3.9 5.9 2.5 1.5 3.2 2.8 the employment related to those exports
SMEs account for over 55% of IE exports to UK.
Other 18.0 17.4 39.5 36.6 30.5 31.1
They are likely to be more adversely affected than
larger companies by the introduction of tariffs and
barriers to trade
42
Source: CSO 2017 * UK data includes Northern Ireland
NTMA calculations; Data does not include contract manufacturingBreakdown of exports to the UK: important trade partner
especially so in smaller sectors (agri-food products)
UK is 13-14% of goods exports but very UK is 16% of services exports but not the
important partner in many small sectors majority trading partner in any segment
100% Red Box includes 100%
many small export
sectors that UK is
80% significant % of 80%
UK trade % of segment exports
UK trade % of segment exports
60% 60%
Meat
40% 40%
Dairy
20% 20%
Medicinal and Computer
pharmaceutical
Services
products
0% 0%
-20% -20%
0.0% 1.0% 2.0% 3.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
UK trade as % of total goods exports UK trade as % of total services exports
43
Source: CSO goods 2017 data, services 2016 data
The size of bubble relates to the sector’s importance to Ireland’s exportsHard Brexit impact estimates all show similar story –
return to WTO rules would be big negative for Ireland
Forecast vs. no Brexit Short term Medium term Long term
baseline (2 years) (5 years) (10-15 years)
Department of Finance
-2.4% -3.3% -5.0%
(ESRI)
-7.0%
Copenhagen Economics -2.0 to 2.5% -4.5% (of which -4.9% is due to
regulatory divergence)
Central Bank of Ireland -4.0% - -6.0%
Bank of England
-5.0% -6.2% -6.2%
“disruptive” (implied)
Bank of England
-6.3% -8.2% -8.2%
“disorderly” (implied)
UK Treasury range (implied) - - -5.0 to 7.2%
44
Source: ESRI, Copenhagen, Bank of England, UK treasury
Implied uses the impact on UK GDP and an elasticity measure of 0.8 to calculate the impact on Irish GrowthMany financial institutions have already announced that
they will expand or set up in Dublin after Brexit
FDI: Ireland may benefit Companies that have indicated jobs to be
moved to Ireland
Ireland could be a beneficiary from displaced FDI.
The chief areas of interest are
Financial services
Business services
IT/ new media.
Dublin is primarily competing with Frankfurt,
Paris, Luxembourg and Amsterdam for financial
services.
Ireland’s FDI opportunity will depend on the
outcome of post-exit trade negotiations. The UK
(City of London) is almost certain to lose its EU
passporting rights on exit, so there may be more
opportunities in time.
45Section 4: Long term fundamentals Ireland’s long run future looks bright thanks to its favourable demographics
Much rebalancing has taken place – Ireland’s structural
growth drivers have reasserted
Gross National Income* at current prices Ireland’s GNI* per capita hit 2007 levels and
(1995=100) compares favourably to EA
320 45,000
300 "Celtic Tiger" Credit/Prop Bubble Recovery
1994-2001 erty Bubble Burst 40,000
280
260 35,000
240
220 30,000
200 25,000
180
160 20,000
140
15,000
120
100 10,000
80
5,000
60
40 -
20
0
1995 2000 2005 2010 2015 Ireland (GNI*) EA 19 (GDP) Germany (GDP)
47
Source: CSO, EurostatIreland’s population profile healthier than the EU average
Ireland’s population was 4.86m in 2018 – Ireland’s population will remain younger
over 200,000 more than 2011 Census than most of its EA counterparts
2.0% Japan
1.8% % of population in age cohort Spain
Italy
1.6% Portugal
1.4% Greece
Germany
1.2% France
Belgium
1.0% Finland
0.8% Canada
Denmark
0.6% 25% of Ireland’s UK
population aged 17 or Ireland
0.4% below versus 19% for EU China
0.2% Sweden
USA
0.0% WorldFavourable population characteristics underpin debt
sustainability over longer term: next 10 years look great
Regional data show Ireland’s mix of young Ireland’s Working-Age Population expected
and old among the best in EU to grow in coming years (2019-2028)
5% Best position is India
top right US
% of population >64 years of age
Ireland
10%
Denmark
UK
15% Belgium
Spain
France
20% Netherlands
Austria
25% EU
Euro area
Italy
30% China
10% 15% 20% 25% Germany
% of population < 15 years of age Japan
Other Germany Ireland Spain France Italy -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%
Source: Eurostat; Regional NUTS2 basis
Source: Oxford Economics forecasts
Note: Each dot is a NUTS2 region in the EU. Y-axis is inverted
49Openness to immigration has been beneficial to Ireland
Latest Census data show net migration Highly educated migrants moving to Ireland
positive since 2015 – mirroring economy “Reverse Brain Drain”
150 3.0% 80
60
100 2.0%
40
50 1.0% 20
0
0 0.0%
-20
-50 -1.0%
-40
-100 -2.0% -60
1995
1987
1989
1991
1993
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
-80
Emigration (000s) -100
Immigration (000s) -120
Net Migration (000s) Third level Other Education Net Migration
Net Migration (% of Pop, RHS) 2009-2013 2014-2018
50
Source: CSOOpenness to trade is also central to Irish success – led by
services exports; Brexit may hinder export-led growth
Cumulative post-crisis total exports (4Q sum Ireland benefits from export
to end-2008 = 100, current prices) diversification by destination
270 170.00
Goods Services Total
250 150.00
(2018) (2017) (2017)
230 130.00
Exp. Imp. Exp. Imp. Exp. Imp.
210 110.00
US 27.7 16.9 11.6 27.0 18.3 25.0
190 90.00
170 70.00 UK* 11.4 21.9 16.4 9.3 15.1 13.7
150 50.00
NI 1.6 1.6 n/a n/a n/a n/a
130 30.00
110 10.00
EU-27 39.0 37.9 29.9 25.7 32.8 27.4
90 -10.00
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 China 3.9 5.9 2.5 1.5 3.2 2.8
Contract Manufacturing* Services
Goods ex. CM Exports Other 18.0 17.4 39.5 36.6 30.5 31.1
Source: CSO, NTMA calculations , * Contract manufacturing proxy 51All this leads to mixture of highly productive and labour
intensive sectors in Ireland
Highly productive LI HP Labour Intensive
80 30%
70
25%
60
20%
50
40 15%
30
10%
20
5%
10
0 0%
Industry ex. Info & comm Fin, Distribution, Prof, admin Public admin, Construction Other Agri,
Distortions insurance & transport, and support education forestry, fish
RE hotels and and health
restaurants
GVA (€bns) Employment (% of Total, RHS)
52
Source: CSO , NTMA calculations, 2018 dataIreland is pretty competitive now; we need to avoid repeat
of the mid-2000s
Nominal Labour Cost Ratio – IE vs Euro Area Unemployment back towards 1999-2007
level, but wage growth less than half
115 7.0%
6.0% 2019
110 forecast
5.0%
4.0%
105
3.0% 2019f
100 2.0%
1.0%
95
Ireland competitive
0.0%
versus euro area
Unemployment Comp. of Emp. per
employee growth
90
2001 2003 2005 2007 2009 2011 2013 2015 2017 Annual Averages (1999-2007)
Source: Eurostat, NTMA analysis *Ratio = IE Nom. Labour
Source: CSO, Eurostat, NTMA calculations
Costs/ EA Nom. Labour Costs
53Ireland’s strong fundamentals highlighted by performance
on United Nations sustainability index
Vs.
Index Score
Selected Countries Global Rank Ireland Global rank Regional
(0-100)
Average
Sweden 1 85.6
Denmark 2 84.2 Subjective Wellbeing
13/133
(2016)
Finland 3 84.0
Norway 4 83.9
Czech Republic 5 81.9 Environmental Performance Index
19/155
(2016)
Germany 6 81.7
France 10 80.3
Belgium 12 80.0 Human Development Index
8/157
United Kingdom 16 78.3 (2016)
Ireland 19 77.9
Spain 25 76.8
Global Competitiveness Index
21/134
Portugal 28 75.6 (2016/17)
Italy 30 75.5
Luxembourg 33 75.0
Global Peace Index
Greece 38 72.9 12/149
(2016)
United States 42 72.4
Source: United Nations SDG project 54Ireland is a good place to live and do business
Ireland is close to OECD norms on social Ireland scores well on metrics such as
issues property rights and government efficiency
100 Ireland
95 UN Goal – Ireland Normalised
OECD
90 Peace, Justice and Actual (world
Average
Strong institutions Figure leader =
85
100)
80
Overall - 87.5 75.8
75
Corruption Perception Index
70 73.0 79.4 73.5
(0-100)
65 Government Efficiency
4.8 74.8 52.8
60 (1-7)
Homicides (per 100,000
55 1.1 97.8 96.1
people)
50 Prison population
Gender Decent work Reduced Sustainable 80.0 87.8 74.6
(per 100,000 people)
Equality and economic Inequalities Cities and
growth Communities Property Rights (1-7) 6.1 94.8 73.1
Ireland (World leader = 100) OECD Average Population who feel safe
75.0 73.7 67.4
walking alone at night (%)
Source: United Nations SDG project 55Ireland reformed its corporate tax code to meet global
standards; the 12.5% rate is fixed Government policy
Ireland’s part in OECD (BEPS) corporate tax Ireland’s role in EU actions on corporate tax
reform reform
• Ireland has been a strong supporter of the BEPS • Ireland agreed two Anti-Tax Avoidance Directives
process since inception. (ATADs) with our fellow EU Member States in
2016 and 2017. The Anti-Tax Avoidance Directives
• Removal of known tax avoidance structures such represent binding commitments to implement
as the “Double Irish”, “the Single Malt” and three significant BEPS recommendations into Irish
“stateless companies”. law as well as two additional anti-avoidance
• Ireland is best in class on tax transparency and measures.
exchange of information. Ireland is one of only 23 • Three out of five required components of the
jurisdictions to have been found to be fully ATADs are now in effect as of 1st Jan 2019:
compliant with new international best practice by Controlled-Foreign Company (CFC) rules, Exit Tax
the Global Forum on Tax Transparency and and General Anti-Abuse Rules (GAAR).
Exchange of Information.
• We continue to engage positively at both EU and
• Ireland introduced Country-by-Country Reporting OECD level on tax issues.
in 2015. Ireland also ratified the BEPS multilateral
instrument in domestic legislation which will
update the majority of Ireland’s tax treaties to be
BEPS compliant.
56Section 5: Property Residential property prices have started to cool as supply comes online
Property prices have levelled off over the last year
House prices rising strongly but Office leads commercial property
some way off peak (peak = 100)
120 120
100 100
80 80
60
60
40
40
20
20
0
0
1996 1999 2002 2005 2008 2011 2014 2017
National Excl. Dublin Dublin Retail Office Industrial
Source: CSO; IPD 58Housing supply still below demand; price inflation has
moderated as supply slowly catching up
Housing Completions above 22,000 in 2018 New dwellings* make up 80% of housing
but still low historically (000s) completions: some debate about the rest
100 25,000
90
80 20,000
70
15,000
60
50
10,000
40
30 5,000
20
10 0
2011 2012 2013 2014 2015 2016 2017 2018
0
1970 1978 1986 1994 2002 2010 2018 New dwelling completion Unfinished
Nationally Dublin ex. Dublin Reconnection Non-Domestic
All connections
Source: DoHPCLG, CSO, NTMA Calculations
* Housing completions derived from electrical grid connection data for a property. Reconnections 59
of old houses or connections from “ghost estates” overstate the annual run rate of new building.Demand has picked up since 2015; Credit slowly
increasing as cash buyers become less important
Mortgage drawdowns rise from deep Non-mortgage transactions still important
trough (000s) but closer to 40% of total
120 20 80.0%
Thousands
18 70.0%
100 16
60.0%
14
80
12 50.0%
60 10 40.0%
8 30.0%
40
6
20.0%
20 4
2 10.0%
0
0 0.0%
2006 2008 2010 2012 2014 2016 2018
Q4 2016
Q2 2017
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Q4 2013
Q2 2014
Q4 2014
Q2 2015
Q4 2015
Q2 2016
Q4 2017
Q2 2018
Q4 2018
Residential Investment Letting
Mover purchaser Non-mortgage transactions
Mortgage drawdowns for house purchase
First Time Buyers Non-mortgage transactions % of total (RHS)
Source: BPFI *4 quarter sum used Source: BPFI; Residential Property Price Register
60Residential property prices have rebounded strongly
since 2012 but steadied in 2018
30%
20%
10%
0%
-10%
-20%
-30%
2006 2008 2010 2012 2014 2016 2018
National (Y-o-Y %) Ex Dublin (Y-o-Y %) Dublin (Y-o-Y %)
Source: CSO; 61CBI’s macro-prudential rules increase resilience of
banking and household sector
CBI’s amended macro-prudential rules Transaction growth has slowed since macro-
prudential rules introduced
• First time buyers (FTBs) can borrow 90% of the 60000 Introduced in 50%
value of a home (10% minimum deposit). Five per 2015
cent of the total new lending to FTBs will be 50000 40%
allowed above the 90% LTV limit.
40000 30%
• For second and subsequent buyers (SSBs), banks
must restrict lending for primary dwelling 30000 20%
purchase above 80 per cent LTV to no more than
20 per cent of new lending to SSBs. 20000 10%
• Bank must restrict lending for primary dwelling
10000 0%
purchase above 3.5 times LTI to no more than 20
per cent of that aggregate value for FTBs and 10
0 -10%
per cent for SSBs.
Q1 2011
Q4 2011
Q3 2012
Q2 2013
Q1 2014
Q4 2014
Q3 2015
Q2 2016
Q1 2017
Q4 2017
Q3 2018
Q2 2019
• Banks have to limit Buy-to-Let loans (BTL) above
70 per cent LTV to 10 per cent of all BTL loans.
4Q Sum of Transactions Y-o-Y Change (RHS)
Source: Residential Property Price Register 62Irish house price valuation metrics continue to rise but
remain below 2008 levels
Deviation from average price-to-income ratio (Q4 2018, red dot represent Q1 2008)
60%
40%
20%
0%
-20%
SD BG NW OE NL ES FR DN LX IE EA PT UK FN BD IT GR
Deviation from average price-to-rent ratio (Q4 2018, red dot represent Q1 2008)
80%
60%
40%
20%
0%
-20%
SD NW BG UK DN FR IE LX ES NL FN OE EA BD PT GR IT
Source: OECD, NTMA Workings 63
Note: Measured as % over or under valuation relative to long term averages since 1980.Section 6: Other data Worries about contingent liabilities no longer; Ireland now has legacy assets
Ireland has legacy banking-related assets
• Banking
Banks continue to be profitable; income, cost and balance sheet metrics are much improved.
Interest rates on mortgages and to SMEs are still high compared to EU thanks to legacy issues and the
slow judicial process in accessing collateral.
An IPO of AIB stock (28.8%) was completed in June 2017. This returned c. €3.4bn to the Irish Exchequer
to be used for debt reduction.
• NAMA
NAMA has repaid 100% of its senior debt; it forecasts a profit of €4.0bn subject to market conditions.
This is expected to be returned to the Exchequer in the next few years – starting in 2020.
65All three pillar banks profitable given enhanced margins
State Ownership
71% owned 14% owned 75% owned
Allied Irish Bank Bank of Ireland Permanent TSB
3.0% 3.0% 3.0%
2.0% 2.0% 2.0%
1.0%
1.0% 1.0%
0.0%
0.0% 0.0%
2012 2013 2014 2015 2016 2017 2018 2012201320142015201620172018
Net Interest Margin % Net Interest Margin % Net Interest Margin %
2 2 2
1 1 1
0 0
0
-1
-1 -1
-2
-2 -2
-3
-3 -3 -4
-4 -4
2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018
Profit Before Tax (€bns) Profit Before Tax (€bns) Profit Before Tax (€bns)
66
Source: Annual reports of banks - BOI, AIB, PTSB
Profit measures are before exceptional itemsDomestic bank cost base reduced over time
Cost income ratios improve dramatically… … and IE banks* below to EU average
90%
150% 144% 80%
70%
123% 60%
125%
50%
40%
100%
88% 30%
20%
75% 65% 64% 10%
53%
0%
50% LV SK ES PL DK GR PT NL HU SI GB FI IS IE IT EU AT LU BE FR CY DE
Staffing (000s) shrunk by c.50% post crisis
25%
30
0% 20 26
AIB BOI PTSB
10 16
2011 2012 2013 2014
10 11
2015 2016 2017 2018 5 2
0
Source: Annual reports of Irish domestic banks AIB BOI PTSB
2008 2018
Source: Annual reports of Irish domestic banks, EBA 67
* EBA data includes three domestic banks as well as Ulster Bank, DEPFA & Citibank.Capital ratios strengthened as banks were slimmed down
and consolidated
Loan-to-deposit ratios have fallen
CET 1 capital ratios (End 2018) significantly as loan books slimmed down
25% 200
180
160
20%
140
120
15% 100
80
10% 21.1% 60
17.5% 40
15.0% 14.7%
13.4% 12.2% 20
5%
-
Loan-to- Loans (€bn) Loan-to- Loans (€bn)
Deposit % Deposit %
0%
CET1 % (Transitional) CET1 % (Fully Loaded) AIB BOI
AIB BOI PTSB Dec-10 Dec-18
Source: Published bank accounts Source: Published bank accounts
Note: “Transitional” refers to the transitional Basel III required for CET1 ratios
“Fully loaded” refers to the actual Basel III basis for CET1 ratios.
68Non-performing loans sold during 2018 as asset quality
continues to improve at three pillar banks
All 3 Pillar banks (€bn) Dec-17 Dec-18 Non-performing exposures % of total loans1 (loss provision % of NPE)
Total Loans 162.4 158.2 Dec-17 Dec-18 Book (€bn)
Non-performing Exposures 22.0 12.7 BOI Irish Residential Mortgages 11.0(24) 9.5(21) 23.7
UK Residential Mortgages 1.9(14) 2.3(15) 21.7
(NPE as % of Total) 13.5% 8.0%
Irish SMEs 15.4(46) 11.2(49) 7.6
Provisions 7.3 4.4 UK SMEs 8.6(42) 6.1(53) 1.6
(Provisions as % of book) 4.4% 2.8% Corporate 3.0(69) 2.6(60) 10.3
CRE - Investment 17.9(43) 10.7(44) 7.7
(Provisions as % of Impaired) 33.2% 34.6%
CRE - Land/Development 39.4(55) 14.0(54) 0.6
Consumer Loans 2.1(98) 2.1(140) 5.1
8.3(36) 6.3(35) 78.4
Loan Asset Mix (3 banks Dec 18)
Corporate/ Mortgage AIB Residential Mortgages 14 10.1 (20) 32.3
SME
SMEs/Corporate 11 5.2 (36) 19.6
25%
CRE 33 18.0 (29) 7.9
Consumer Loans 18 11.1 (50) 3.1
16 9.6 62.9
Consumer
5%
60% PTSB Residential Mortgages 21.7(44) 8.8(39) 12.4
Buy-to-let Mortgages 21.8(64) 12.9(113) 4.0
10% Commercial 30.3(104) 33.3(76) 0.2
CRE
Consumer Loans 15.4(92) 7.5(112) 0.3
21.7(50) 10.0(64) 16.9
Source: Published bank accounts
1 Non-performing exposures include impaired loans, loans past due greater than 90 days but not 69
impaired, and Forborne Collateral RealisationsProfitability aided by higher interest rates than EA peers
Ireland’s interest rates on lending for house Rates on SME loans* over euro area average
purchase the highest in euro area
8 % 9 %
7 8 2% spread above
Consistent 1% spread
euro area rates since
above euro area rates 7
6 2015
6
5
5
4
4
3
3
2
2
1 1
0 0
2008 2010 2012 2014 2016 2018 2008 2010 2012 2014 2016 2018
Max Min Ireland Euro Area Max Min Ireland Euro Area
Source: ECB *SME loans proxy of loansIrish residential mortgage arrears are still improving; but
there are complications unrelated to the economy
Mortgage arrears (90+ days) Repossessions**
20% 12.0 PDH Arrears 3500 6.0%
10.0 (by thousands)
18%
8.0 3000 5.0%
16%
6.0
14% 2500
4.0 4.0%
12%
2.0
10% 2000
0.0
8% 3.0%
-2.0
6% 1500
-4.0
4% -6.0 2.0%
1000
2% -8.0
0% 1313131313131313131 500 1.0%
341234123412341234123412341234123412341
09 10 11 12 13 14 15 16 17 18 19 10 11 12 13 14 15 16 17 1819 0 0.0%
Over 90 days 90-180 days 13 14 15 16 17 18 19
PDH + BTL (by balance)
181-360 days 361-720 days
PDH + BTL (by number) >720 days Total change PDH BTL % of MA90+ (RHS)
Source: CBI
• Non-bank entities now hold 13 per cent of all PDH mortgage accounts outstanding; 9 per cent are held by regulated retail credit
firms, with the remaining 4 per cent held by unregulated loan owners. Unregulated loan owners hold 23 per cent of all PDH
mortgages in arrears over 720 days
* Over 40% of those cases in arrears > 720 days are also in arrears greater than five years. 71
** Four quarter sum of repossessions. Includes voluntary/abandoned dwellings as well as court ordered
repossessionsNAMA: All original senior debt has been repaid; likely to
deliver surplus of around €4bn from 2020 onwards
• NAMA’s operating performance is strong
Acquired 12,000 loans (over 60,000 saleable property units) related to €74bn par
of loans of 780 debtors for €32bn
NAMA continues to generate net profit after impairment charges.
• It has repaid 100% of €30.2bn of original senior debt
NAMA exceeded its senior debt redemption targets well ahead of schedule. It remains on course,
subject to market conditions, to redeem its small amount of subordinated debt by 2020.
• NAMA could deliver a surplus for Irish taxpayers of about €4.0bn, according to its management team - if
current market conditions remain favourable.
• NAMA initiative to develop up to 20,000 housing units by 2020 – subject to commercial viability.
Progress has been strong so far: 9,700 units were completed in 2014 – 2018;
Another 3,000 are under construction or have had funding approved;
A further 6,400 have planning permission granted.
More NAMA information available on www.nama.ie 72The European Commission’s ruling on Apple’s tax
affairs does not change the NTMA’s funding plans
• The EC has ruled that Ireland illegally provided State aid of up to €13bn, plus interest to Apple. This
figure is based on the tax foregone as a result of a historic provision in Ireland’s tax code. This was
closed on December 31st 2014.
• This case has nothing to do with Ireland’s corporate tax rate. In its press release the EC stated: “This
decision does not call into question Ireland’s general tax system or its corporate tax rate”.
• Apple is appealing the ruling, as is the Irish Government. This process could be lengthy. Pending the
outcome of the appeal, Apple has paid approximately €13bn plus EU interest into an escrow fund.
• Bank of New York Mellon has been selected for the provision of escrow agency and custodian services
to hold and administer the fund.
• Amundi, BlackRock Investment Management (UK) Limited and Goldman Sachs Asset Management
International have been selected for the provision of investment management services for the fund.
• As the funds will be held in escrow pending the outcome of the appeal, the NTMA has made no
allowance for these funds.
73Irish Sovereign Green Bond Framework aligned with the
ICMA Green Bond Principles
Project Evaluation and
Use of Proceeds
Selection Process
Sustainable Water, Clean Transportation, Energy Working Group established by Government:
Efficiency, Climate Change Adaptation & Others NTMA, DPER, DCCAE & DFIN
Management of
Reporting
Proceeds
Pending its allocation to Eligible Green Projects, Ireland Annual Allocation Report &
will temporarily hold proceeds in its Central Fund. Biennial Eligible Green Project Impact Report
Source: NTMA 74
Further details are available at ntma.ieGovernment’s NDP outlines green projects; aim to cut CO2
emissions by at least 80% by 2050
1 in 5 euros in the NDP to be spent on green
projects
Sustainable Transition to a
Management Low carbon
Sustainable and Climate
Total:€23
Mobility of Water and billion (13%
Environmental Resilient
€8.6 billion Resources Society of GNI*)
€6.8 billion €7.6 billion
Further details are available at ntma.ie Source: National Development Plan 75
2018-2027Annex Explanatory charts about the distortions to Ireland’s National Accounts
Distortions to GDP/GNP make them sub-optimal
indicators of economic performance
Substantial activity from multinationals Reclassification of several companies and
distorts the national accounts “onshoring” of IP led to step change in GDP
30% 350
25% c.35% increase in
300
nominal GDP in 2015
20%
250
15%
10% 200
5%
150
0%
100
-5%
-10% 50
0
Change in Inventories External Channel 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Modified Domestic Demand GDP Nominal GDP (€bns) Nominal GNP (€bns)
Source: CSO; Department of Finance 77The change in capital stock resulted in large increase in
net exports – mostly through contract manufacturing (CM)
240
The capital stock expanded in 2015 by c. €300bn or c. 220
40%. This is due to: Contract
200
manufacturing
Re-domiciling/inversions of several multinational 180 proxy*
160
companies
140
The “onshoring” of IP assets into Ireland by 120
multinationals 100
The movement of aircraft leasing assets in Ireland. 80
60
Goods produced by the additional capital were mainly 40
exported. Complicating matters, the goods were 20
produced through “contract manufacturing”. 0
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
CM occurs where a company in Ireland engages another National accounts exports Trade data exports
abroad to manufacture products on its behalf.
Crucially, the foreign contract manufacturer supplies a manufacturing service to the Irish entity but the
overseas contractor never takes ownership of the product. When the product is sold abroad, a change of
economic ownership takes place between Ireland and the country where the product is sold. This export is
recorded in Ireland’s statistics even though it was never produced in Ireland.
Little or no employment in Ireland results from this contract manufacturing.
Source: CSO 78Investment distorted by multinationals importing
intellectual property (IP) into Ireland
Investment (4Q sum, €bns)
140
• Investment is above the pre-crisis level due to
MNCs importing intangibles into Ireland. 120
100
• Ireland has become an ICT hub in recent years
80
with this investment impacting the real economy.
60
• However the recent sharp increase in intangibles 40
investment overstates Ireland’s position and
should be discounted accordingly. 20
0
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
• Building investment grew by 12.4% y-o-y in 2018
versus 2017 highlighting pent up demand for Building Investment Other Investment
housing. Distortions Modified GFCF
Total GFCF
Source: CSO, 79GNI* is a better measure of underlying economic activity
than GDP/GNP; best as a level rather than a growth metric
National Account – 2015 2016 2017 2018
• GDP headline numbers do not reflect the “true” Current Prices
growth of Ireland’s income due to MNCs. (€, y-o-y growth rates)
Gross Domestic Product 262.8bn 271.7bn 297.1bn 324.0bn
• Reasons for 2015-18 MNC distortions:
(GDP) (34.9%) (3.4%) (9.4%) (9.4%)
Re-domiciling/inversions of several minus Net Factor Income
multinational companies from rest of the world
The “onshoring” of IP assets into Ireland = Gross National Product 200.8bn 220.6bn 234.9bn 253.1bn
by multinationals (GNP) (22.9%) (9.9%) (6.5%) (7.7%)
The movement of aircraft leasing assets add EU subsidies minus 1.2bn 1.0bn 1.1bn 1.1bn
in Ireland. EU taxes
= Gross National Income 202.0bn 221.6bn 236.0bn 254.2bn
• By modifying GNI to take account of these factors, (GNI) (22.9%) (9.7%) (6.5%) (7.7%)
GNI* gives us a better understanding of the minus retained earnings -4.7bn -5.8bn -4.5bn -5.0bn
underlying economy. of re-domiciled firms
minus depreciation on -30.1bn -35.3bn -42.5bn -46.3bn
foreign owned IP assets
minus depreciation on -4.6bn -4.9bn -5.1bn -5.4bn
aircraft leasing
= GNI* 162.7bn 175.6bn 184.0bn 197.5bn
(9.4%) (8.0%) (4.7%) (7.3%)
Source: CSO 80Modified Domestic Demand (MDD) – which ignores
exports - is best cyclical indicator
15%
GNI* is useful but not timely. MDD and MFDD are
released on a quarterly and real basis.
10%
MDD ignores the net exports channel. It also omits
aircraft leasing and IP imports from investment.
5%
The measure includes:
Private and government consumption
Building investment 0%
Some machinery & equipment investment
Some intangible asset investment -5%
Value of physical changes in stock. This last piece
is impacted by MNCs and is quite volatile.
-10%
MDD has Ireland growing negatively in Q1 2019
mainly due to volatility in stocks.
-15%
When stocks are excluded, (i.e. using Modified Final 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Domestic Demand) real underlying growth was 3.7% Modified Domestic Demand MFDD (MDD ex stocks)
in Q1 2019. Since 2014, annual growth has averaged
4.4% when looking at MFDD.
Source: CSO, four quarter sum growth rate used to strip out substantial quarterly volatility. 81
Note MDD includes inventories. Large inventories in Q4 2016 added a further degree of volatility into
MDD data.Disclaimer
The information in this presentation is issued by the National Treasury Management Agency (NTMA) for
informational purposes. The contents of the presentation do not constitute investment advice and should
not be read as such. The presentation does not constitute and is not an invitation or offer to buy or sell
securities.
The NTMA makes no warranty, express or implied, nor assumes any liability or responsibility for the accuracy,
correctness, completeness, availability, fitness for purpose or use of any information that is available in this
presentation nor represents that its use would not infringe other proprietary rights. The information
contained in this presentation speaks only as of the particular date or dates included in the accompanying
slides. The NTMA undertakes no obligation to, and disclaims any duty to, update any of the information
provided. Nothing contained in this presentation is, or may be relied on as a promise or representation (past
or future) of the Irish State or the NTMA.
The contents of this presentation should not be construed as legal, business or tax advice.
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