National debt? It’s higher than we thought

A NEW method introduced to more accurately calculate the performance of the Irish economy indicates that our level of national debt is much higher than previously stated.

The Central Statistics Office yesterday outlined the methodology, known as ‘Modified Gross National Income’ or ‘GNI*’, which attempts to eliminate the distorting effect that the large number of multinationals operating in Ireland has on our economic figures.

Including the value of large foreign firms’ wealth and assets saw Ireland record a gross domestic product growth rate of 26% in 2015, leading to the unrealistic figure being ridiculed internationally as ‘leprechaun economics’. But while the new method offers a potentially more accurate calculation of the country’s wealth, it has also made for some sober reading.

It showed Ireland’s debt as a percentage of the country’s wealth stood at 106% at the end of 2016. When the more traditional calculation of GDP is used, our national debt stood at a far less worrying 73%.

The new figures put Irish debt levels closer to those of the troubled economies of Spain and Cyprus, rather than the more successful Germany and the Netherlands, as implied by debt-to-GDP. Finance Minister Paschal Donohoe acknowledged that the new calculation provided a stark result.

‘The still elevated levels of debt in the Irish economy and the increasingly uncertain external environment underlines the importance of sensible management of the public finances,’ he said. ‘That is what the Summer Economic Statement sets out and what the Government will continue to do.’

However, KBC Bank said that the new GNI* system also suggested that the Irish economy is growing at a stronger pace than previously thought. It said: ‘We estimate that “real” growth as measured by a new measure, GNI*, was in the region of 9% in 2016, a notably stronger out-turn than suggested by growth in GDP of 5.1%.’

Meanwhile, the more traditional GDP method threw up some mixed results. It showed that Ireland’s economy grew strongly last year, with the value of goods and services rising by 5.1%. However, it was also found that the economy shrank by 2.6% at the start of 2017, compared to the strong performance at the end of last year.

But despite the early year dip, Mr Donohoe said the new numbers were very positive. ‘This confirms that Ireland was the fastest growing economy in the European Union in 2016,’ he said.