Economy sound, says agency

THE economy was praised yesterday by credit ratings agency Standard & Poor’s as it reaffirmed its highest ratings on the country’s debt.

In a report on the economy yesterday, S&P reaffirmed Ireland’s “AAA” long-term and “A-1+” short-term sovereign credit ratings.

The better the rating from agencies like S&P, the cheaper and easier it is for the Government to borrow on international markets.

“The affirmation reflects Ireland’s diversified and flexible economy; strong general government finances, and favourable demographic structure and manageable future pension obligations,” said Standard & Poor’s credit analyst Mary Nnachi.

It said the economy had attracted sizeable foreign direct investment (FDI) inflows over recent years, and boasts a growth performance that has consistently outperformed the “AAA” average since 1995.

“Although the boom years are over, continued employment growth, and productivity gains above the EU average, should ensure real GDP growth continues to outperform its peers over the medium term.”

The agency said continued political backing for expenditure restraint will help to keep the general government deficit close to 1% of GDP over the next few years.

It added that since 1999, Ireland has reduced its debt burden by 16%, to 33% of GDP in 2003.

“This was the largest debt reduction recorded by any EMU member over the period, giving Ireland the second-lowest debt burden in the EU.”

S&P also praised the National Pension Reserve Fund, despite calls from politicians and economists to use the cash for infrastructure projects.

“In the long term, as a result of Ireland’s young population and its decision to begin pre-funding future pension liabilities in its National Pensions Reserve Fund, the fiscal impact of the ageing of the population will be felt much later and less severely than in other European countries.”

Ms Nnachi said these strengths outweigh the inherent vulnerabilities posed by a small, open economy. S&P warned, though, that since inflation remains well above the EU average, domestic price pressures need to be better contained in order for the country to remain competitive in future, particularly in the context of an enlarged EU.