Ideal partners

The government should pay more attention to the benefits it gets from improving public sector with private investments.

It was reported yesterday that the borrowing costs of Ireland fell to the record-low 0.37%, and the tendency may continue and lead to the interest-free situation.

Even considering the fact Ireland has only made its way out of difficulties with the help of the European Union and International Monetary Fund, it’s not the time to be comforted by the current situation. It’s better to pay attention to the troubles in the global economy that reflect on the bond markets.

During the past six years, the leading banks have been giving large amounts of liquidity to help the global economy, trying to fix the troubles with its growth and avoid inflation. The efforts are huge, but they give little results. Even though the US has returned to its pre-crisis state, the situation in the EU isn’t so satisfying, especially considering Brexit.

Unfortunately, investors are too cautious to give their money to help the economic situation as the growth forecasts are quite unpredictable.

This presents opportunities and threats for Ireland.

The domestic economy has come through a chastening downturn, which means that many sectors are well below essential investment levels. Most of the opposition parties in the Dail and several lobby groups have called on the government to ignore the EU’s fiscal stability rules and ramp up capital spending in areas such as infrastructure, education, health and the rural economy.

The formulation of the budget in October is more open than at any time in the past. A special Oireachtas committee will review tax and spending proposals and make recommendations.

In other words, the government will come under intense pressure to loosen the purse strings.

The Fine Gael-led coalition cannot afford to deviate from the path of fiscal prudence. Ireland is still a highly indebted country and the government would be dangerously exposed to any rupture in the global economy.

Yet growth will remain constrained for the foreseeable future unless the economy receives significant investment.

The answer lies in public-private partnerships. The EU Commission has launched a €300 billion investment programme to kickstart growth in the bloc. Rather than using taxpayers’ money, it aims to attract funding from the private sector.

Pension funds and other types of institutional investors, for example, have billions of euros sitting on their balance sheets and are seeking investment opportunities. Countless infrastructure projects in Ireland and other EU member states offer safe and attractive returns over timeframes that match the regulatory requirements of pension funds in particular.

The EU Commission intends to lure these funds into government-backed projects. Commission sources say that the Irish government has not put forward any detailed proposals that come near taking advantage of the opportunities that the plan presents.

This is a pity and should be addressed. There is no doubt that public-private partnerships would face a wall of opposition in this country from politicians implacably opposed to private sector companies having a role in public sector projects.

But in view of Ireland’s high debt levels, limited tax revenues and strict EU budget rules, public-private partnerships are by far the most effective way of solving the investment conundrum.