Why are Irish Non-Financial Corporations so Indebted?

Mary Cussen and Brídín O'Leary
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Brídín O'Leary: Central Bank of Ireland

Quarterly Bulletin Articles, 2013, 104-118

Abstract: Based on debt-to-GDP ratio which is the most cited measure of non-financial corporation (NFC) debt, Ireland has one of the most indebted NFC sectors in Europe. This article examines the specific characteristics of the Irish economy to analyse elevated debt levels of NFCs relative to GDP and their continued rise despite the economic downturn. The article finds that Irish NFCs have a high debt-to-GDP ratio when compared with many EU countries. However, they are relatively less indebted when compared with the size of their balance sheets. The article concludes that these trends reflect the large and increasing activities of multi-national corporations (MNCs) in Ireland in recent years. While NFCs have significantly reduced borrowing from credit institutions through net loan repayments and loan write-downs, their borrowing from non-residents has increased substantially by 160 per cent between Q1 2008 and Q2 2012. Results also show that aggregate indicators can mask some of the underlying dynamics in the data.

Date: 2013-01
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