Ireland Urged to Use Pension for 'US-Style Stimulus'

Glas Securities has said that Ireland's National Pensions Reserve Fund (NPRF), created in 2001 to pay for future pension liabilities, should consider using its state pension fund to hedge against the impact of a planned budget squeeze.

(October 28, 2010) — Analysts at Glas Securities have said the Irish government should consider using the country’s pension reserves to complete a US-style economic stimulus package.

According to the Dublin-based fixed-income specialists, in order to counter the impact of a planned budget crisis, Ireland should consider tapping its $33 billion state pension for a “US style stimulus.” The National Pensions Reserve Fund (NPRF) already allocates €6.8bn of its assets in a ‘directed portfolio’ comprised of preference shares and ordinary shares in Bank of Ireland and Allied Irish Banks.

“One must question the wisdom of maintaining funds in a ‘deposit account’ when one is finding it difficult to pay ‘the mortgage,’” analysts including Fergal O’Leary at Glas said in a release. “It might be better to re-inject these funds into the economy over the next two years.” The firm added that because of the size of Ireland’s deficit, it is “not well placed” to consider extending the 2014 target agreed with the European Commission. This week, Ireland’s government revealed plans to lower its deficit by seeking $21 billion in spending cuts and tax hikes through 2014, aiming to reduce the deficit to 3% of gross domestic product that year from about 12% this year. Analysts at Glass said a €16bn adjustment is necessary due to the fact that growth will be slower than predicted by the government.

“We question whether the state should reconsider its National Pension Reserve Fund assets and contemplate whether it is best leaving this reserve on deposit for the longer term when there are such question marks over the economy’s ability to deliver in the short-term,” analysts at Glas stated. “We could consider that the remaining €14bn of funds presently invested in the NPRF may be considered variously to aid the economy.”

Separately, Ireland’s finance minister has been encouraged by some senior advisers to allow the country’s state pension to buy Irish government bonds, Reuters is reporting. An Irish senior official told the news service that no decision to take such action has been made. “That’s an asset that the government has which they can choose to use — it’s there,” the official told Reuters, adding that the power of the $33 billion state pension could encourage other investors to purchase Ireland’s debt.

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