Irish debt ranked with Libya and S Africa

CREDIT rating agency Fitch has slashed Ireland’s debt profile by three notches.

Fitch has downgraded Ireland’s debt rating by three levels from ‘A+’ to ‘BBB+’. This puts Ireland at the same level as countries such as Libya and South Africa.

The ranking is still two steps above Greece, which was the first EU country to accept a rescue plan from the EU and IMF.

Despite the four-year national plan and the swingeing cuts imposed in Tuesday’s budget, Fitch said the cost of supporting the banks and the worsening outlook for the Irish economy forced it to downgrade Ireland’s rating further, said Chris Price, a director of Fitch.

Mr Price blamed the sharp reversal on a very uncertain outlook for the economy.

“The understanding we have of the seriousness of the position has increased in recent months,” he said.

“Just a few months ago conversations we had with the Department of Fiance suggested the budget cuts would be of the order of €3 billion.

“Now, after this week’s budget, that figure has gone up to €6bn. It’s doubled and there’s much more to come,” he said.

Although the EU and the IMF have provided finance for the Irish Government, the economy faces tough challenges.

The loss of market access, which is likely to be prolonged, means the Irish Government’s financing flexibility is significantly diminished, despite access to €67.5bn of financing from the EU and IMF.

Overall several factors, from the banks to growth potential, underscores that the future for Ireland “is highly uncertain,” the agency said.

In a separate comment on the economy Goodbody’s chief economist, Dermot O’Leary, said: “There are still many uncertainties about whether Ireland can overcome its fiscal problems over the next few years and thus stabilise its public debt levels.

“The most pressing question in investors’ minds though, seems to be whether the Irish economy can grow at a time when budget consolidation is providing such a contractionary impact.”

Fitch said the scale and pace of the deterioration of public finances, continuing fiscal and macro-financial risks emanating from the banking sector, means “Ireland’s sovereign credit profile is no longer consistent with a high-investment grade rating.”

Asked if its analysis implied Ireland would default in its debt, Mr Price said “no”.

The triple B ranking is an “investment grade rating,” which means Fitch in “not expecting” Ireland to default on its debts.

“There is obviously a chance that it will default, but that is not our main expectation,” he told RTÉ news.