S&P upgrades outlook to positive

The credit ratings agency Standard & Poor’s has upgraded its outlook for Ireland from stable to positive, while retaining the BBB rating.

This increases the likelihood of Ireland’s rating getting an upgrade over the short-to-medium term.


Another of the big credit ratings agencies, Moody’s, declined to say whether it plans to review its rating of the Irish economy following the S&P move. It is the only one of the big three ratings agencies to have Ireland at sub-investment grade.

However, because the country is still lumbered with a junk status by Moody’s, many pension and investment funds are excluded from buying Irish debt.

The prospects of Ireland making a sustainable return to the markets following the exit from the EU/IMF bailout programme would receive a huge boost if it secured an investment grade by all three agencies.

S&P revised its outlook for Ireland on the basis of general government debt declining more rapidly than it had previously forecast. It now expects the national debt to peak at 122% this year before falling to 112% by 2016. The Government’s forecast is for debt to peak at 123% this year.

Government debt could fall faster than what S&P has pencilled in if Nama offloads its loan assets sooner than it expects.

The ratings agency estimates that the contingent liabilities from the financial sector now account for 30% of GDP, which it describes as limited”.

When the Government introduced the bank guarantee in Sept 2008, the contingent liabilities from the financial sector triggered a loss of investor confidence and forced the country into a bailout programme.

Other factors that contributed to the improved outlook are the raft of reforms introduced during the programme that promote economic competitiveness and flexibility as well as steps taken to enhance the regulatory and legal framework.

The domestic economy is showing signs of stabilisation with unemployment starting to fall and house prices stabilising. If the international trade environment improves, then Ireland’s recovery could surprise and growth could exceed the forecast 2%, said S&P.

One area of concern is the level of non-performing loans at the banks. S&P welcomed the repeal of the Dunne judgment that will enable banks to take repossessions of homes and the introduction of the personal insolvency regime. However, because of the level of bad loans, it does not see the domestic banks returning to profitability before 2015.

A spokesperson for the NTMA said the agency welcomed the move. “It is encouraging that Standard and Poor’s acknowledges the continued progress Ireland is making on the fiscal side and the improved access to capital markets.”

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