Sat, 18 Sep 2021

DUBLIN - The International Monetary Fund (IMF) has confirmed to Ireland that it can repay its bailout loans from the Fund early without paying any penalty

In a letter to Michael McGrath, Fianna Fail spokesman on finance, on Friday (8 August) last week, IMF mission chief for Ireland Craig Beaumont informed that the multilateral funding agency accepted early repayment of credit with no fee or conditionality.

"Early repayments are not unusual, including examples in recent years of Latvia, Hungary and Iceland among others," Beaumont wrote in his letter

"The structure of IMF surcharges is intended to provide incentives to avoid large and prolonged borrowings from the IMF. Ireland can decide to repay its outstanding IMF credit early, including based on considerations of interest rate differentials and their potential budgetary implications."

The terms of Ireland's 2010 international bailout included a loan of 22.5 billion euros from the IMF, with a blended average interest rate of 4.99 percent, which is more than twice the cost of borrowing on the markets today, McGrath told RTE News on Tuesday.

All IMF loans outstanding are subject to the adjusted basic rate of charge which is currently 1.08 percent, the IMF letter states.

On the amounts in excess of 300 percent of quota, all the borrowers face a surcharge of 200 basis points in addition to the basic rate, where that surcharge rises to 300 basis points if credit outstanding remains above 300 percent of quota for three consecutive years.

As Ireland's quota stands at about 1.44 billion euros, the threshold for surcharges is about 4.32 billion euros,. Reducing outstanding IMF loans to that amount would eliminate surcharges, entailing total repayments of about 17.96 billion euros

"The IMF's confirmation that Ireland may repay its loans to the Fund early without any penalty opens up the possibility of a very significant annual saving for the State and every effort must be made now to achieve this," McGrath said.

"Given the benign borrowing conditions at present, the 20 billion euros cash stockpile held by the National Treasury Management Agency (NTMA) and the fact that we are paying almost 5 percent on the IMF loans, it makes perfect sense for the government to pursue this issue," he added.

McGarth pointed out that political goodwill toward Ireland is quite strong at the moment, raising the prospect of a deal with the State's other debtors.

Citing figures provided by Finance Minister Michael Noonan, McGrath said that paying back 15 billion euros early to the IMF could save up to 375 million euros annually, reducing budgetary pressures on the exchequer.

Last month during the launch of the NTMA's annual report, Noonan had indicated that Ireland would look to refinance about 15 billion euros of its debt, in three tranches of 5 billion euros over the next 18 to 24 months.

"There is a golden opportunity to reduce Ireland's annual interest bill. I will be putting pressure on Minister Noonan to deliver on this on the resumption of the Dail in September," said McGarth.

"The government now needs to follow up on this with the other international lenders who provided us with funds under the bailout programme as their consent is required to avoid early repayment of the IMF loans triggering proportionate repayments to the other lenders.

"It is in everyone's interests that Ireland's debt position is made more sustainable and that this annual saving is achieved for the benefit of Irish taxpayers."

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