Ireland estimates its economic growth could flatline or even contract next year in the event of a no-deal Brexit. To absorb the shock, and support affected industries, the government has said it would allow the public finances to move back into deficit for three to four years.
Conor O'Kelly, whose office will have to raise the debt to fund that deficit, said investors give governments plenty of leeway to react to such events and he saw no issue in running a modest deficit provided the money is used correctly.
"Investors know the (finance) minister is not running the economy for bond markets investor requirements only and I think investors expect the minister to react to any economic shock that might come along," O'Kelly told a news conference.
"It's much more about the long term journey and profile. Investors have a lot of confidence in Ireland, in the policymakers and the minister, and I don't see anything that the minister is talking about that would change any of that."
O'Kelly highlighted Brexit, fiscal challenges in Italy and international tax changes as the potential risks to Ireland's ability to borrow, adding that investors were not yet acting on Brexit ahead of Britain's latest departure deadline of Oct. 31.
With Irish 10-year bonds yielding a record low 0.18%, he said investors believe the economy in the aggregate should be resilient to Brexit but also warned that when it comes to bond markets, participants can afford to wait: "That's why we would worry ultimately about the impact on our prices."
Joking that he should probably have a picture of European Central Bank chief Mario Draghi in his office, given how his monetary easing policies helped, O'Kelly said the redemption profile of Irish debt will be as smooth as it has ever been after 2020. But he warned that a national debt of around 100% of gross national income nevertheless leaves Ireland significantly exposed to rising interest rates.
"I'll give you an example, one of our bonds that matures in 2022 is a five-year note that has a 0% coupon. When we go to refinance that, what are the chances of doing that at a lower rate?" he said.
"When we come to refinance debt, it's going to get more difficult. Whatever your assumption about interest rates, the reality is the interest bill for the state, because of the stock of debt, is at some point going to start going higher.
"We have to be cognisant of that in all our planning."
(Reporting by Padraic Halpin; Editing by Catherine Evans)
By Padraic Halpin