Big boost as Moody's and Fitch upbeat on economy

(15 Nov 2012)

Ireland received a significant boost last night after ratings agency Fitch said the outlook for the national finances has improved to "stable" from "negative". Earlier, rival agency Moody's also issued a broadly supportive assessment of Ireland's financial progress.

Fitch left its BBB+ rating for Ireland unchanged but said it has changed its outlook for the country to a higher "stable" ranking because the risks surrounding the Irish financial adjustment path have "narrowed and become more balanced".

The boost comes as the National Treasury Management Agency (NTMA) is due to raise €500m on the bond markets later today. Bank of Ireland borrowed €1bn on the markets without a government guarantee earlier in the week.

"It is encouraging that Fitch acknowledges the continued progress Ireland is making on the fiscal side and the improved access to capital markets as reflected in our bond market engagements this year," the NTMA said last night.

Moody's held back from upgrading Ireland's debt ranking in a separate report published yesterday, but was also positive about how the financial crisis has been tackled.

A deal on the Anglo promissory notes, or a real pick-up in economic growth, could help catapult Ireland back into the coveted "investment grade" rating territory, a Moody's analyst told the Irish Independent.

Moody's kept its 'Ba1' credit rating for the country unchanged yesterday when it published an annual report on the state finances.

It still regards the rating outlook as negative.

Despite leaving the rating unchanged, the report paints a highly favourable picture of efforts to restore Ireland's financial health.


It cites high institutional strength, a "relatively predictable policy framework, commitment to fiscal consolidation and structural reforms", among the country's strengths.

It noted that Ireland is meeting all the targets set under the EU/IMF bailout programme.

The Republic benefits from a business-friendly tax environment and a flexible workforce that have helped regain lost competitiveness, Moody's said.

While the country is seen to be making progress, there are still significant risks, according to Dietmar Hornung, who wrote the report.

That includes the problems of the wider euro area, which are a drag on the economy here.

On the upside, there is now a potential path back to a higher "investment grade" rating, he told the Irish Independent.

That could happen if growth resumes at any kind of significant pace; if a deal is done to cut the €3.1bn-a-year cost of the Anglo promissory notes, or even if there are no new surprises from the banks, he said.

The path back to "investment grade" will be damaged and Ireland's rating could fall further if figures for economic growth disappoint again, if there is evidence of a worsening of the mortgage crisis and if the Government fails to secure a restructuring of the €30bn bill for Anglo, he said.

Moody's no longer sees any risk of "Greek-style" losses for holders of Irish government bonds.

However, the agency has not lifted its Irish rating back above so-called junk status and says the outlook is still negative.

That negative outlook reflects the risk that austerity measures may not be fully followed through, especially because of the weakness in the Irish economy. It is also driven by the continuing "debt crisis" in the wider euro area.

Moody's thinks Ireland will need a "precautionary" EU/IMF deal to be in place at the end of next year, when the bailout formally ends. That would ease Ireland's return to being fully financed in the markets, and would not be regarded as a "second bailout", the analyst said.

- Donal O'Donovan -  Irish Independent

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