We have previously looked at the impact each of the sectors of the economy have on Ireland’s international investment position – that is, the balance of external financial assets and financial liabilities. In the main the story is little changed since the previous post.
The CSO have published the Q4 2016 update of the IIP data and here is the Net IIP position for the total economy and for the economy excluding non-financial corporates.
Excluding the IFSC the Irish economy has a NIIP of –€382 billion which is not a very good headline figure. However, that is hugely influenced by the –€454 billion NIIP of the non-financial corporate sector. Unsurprisingly the cross-border position of Ireland’s NFC sector is itself hugely influenced by MNCs. And what is shown above is the net figure.
The Irish NFC sector has €785 billion of external financial assets and €1.24 trillion of external financial liabilities. The balance gives us the net position of –€454 billion. Are the Irish operations of MNCs bankrupt? No.
This chart above only shows the financial position. There have been some step-changes in the NIIP of the NFC sector and this is related to the onshoring of intangible assets. Some Irish-resident companies of MNCs have borrowed huge sums of money and used that money to purchase intangible assets. The scale of this was in the hundreds of billions in Q1 2015 with ten of billions of such transactions occurring in Q4 2016. The NIIP of these companies doesn’t really tell us anything about the underlying position of the Irish economy.
We can get a much better insight if we remove them and that is what the blue line does above. It can be seen that this has been steadily improving since the data series began in 2012 moving from –€90 billion then to +€72 billion now. That is a large improvement in just five years.
Most of the improvement has been effected through the financial system. In the early years of the crisis many of the external creditors of the banks were repaid with liquidity from the Central Bank which itself generated a negative Target2 balance. While the banks had a relative small net position in 2012 the net position of the Central Bank was –€91 billion at that time. Since then the banks have reduced their reliance on central bank funding and the external position of the Central Bank has improved with that.
Of the remaining sectors, financial intermediaries have a NIIP position of +€189 billion. This, in large part, reflects the foreign financial assets of Irish investment and pension funds. The government sector has a negative position of –€128 billion representing the international nature of much of the borrowing it undertook in the crisis. Add up all those and you get our net position of +€72 billion – excluding those data polluting MNCs of course!Tweet