Is Ireland a highly indebted country? This is one of the questions the Economic and Social Research Institute (ESRI) tries to answer in its latest quarterly report. You might be tempted to conclude that with a national debt rapidly approaching 240 billion euros, the answer is overwhelmingly yes. But it depends on the size of the economy that carries it.
ESRI notes that Ireland’s debt-to-GDP (gross domestic product) ratio, which is typically used in sovereign debt assessments, stood at a relatively low level of 59% in 2020, while acknowledging ” the well-known difficulties with GDP in an Irish context ”. When we use the debt-to-GNI ratio * (modified gross national income, the customized measure of the Central Bureau of Statistics), our ratio rises to 105%.
However, the think tank says there are problems with both approaches: perhaps one provides a false benchmark due to the inherent volatility of GDP; the other inhibits comparisons with other countries.
Instead, he suggests using another measure of fiscal sustainability – the ratio of gross government debt to tax revenue.
In 2019, Ireland’s debt-to-tax revenue ratio was 2.6. In terms of the eurozone comparison, it wasn’t as high as Greece, Italy, Portugal or Spain but was – as ESRI notes – at the high end of the distribution, suggesting that Ireland is one of the most indebted countries in Europe.
“The key point is – [and] I think that is often lost in some of the comments around these type of indicators – you have to look at the trend, ”said Kieran McQuinn of the institute. “A snapshot at one point won’t necessarily tell you much.
“What is clear in an Irish context [is that] there has been a significant improvement in this ratio over the past seven or eight years and this is due to the very strong improvement in economic conditions, ”he said.
The government’s debt-to-tax revenue ratio fell from 3.9 in 2011 to 2.6 in 2019, a decrease of 30%. “This suggests that public finances are in a better position” and debt more sustainable, said McQuinn.