Treaty yes vote good for debt ratings, says Fitch

The passing of the fiscal stability treaty is good for Ireland’s debt ratings, Fitch Ratings says.

The ratings agency said it removes potential uncertainty about Ireland’s future funding.

“A no vote would have increased downward pressure on Ireland’s ‘BBB+’ rating because it would have stopped the country receiving European Stability Mechanism funds after the current EU/IMF programme finishes next year. The yes vote has removed this immediate concern,” Fitch said in a note issued by the company’s director of sovereigns Gergely Kiss.

Fitch noted that while it does not put upward pressure on the rating, neither does it change Ireland’s fiscal situation, with the country set to run a large deficit for some time — Fitch forecast 8.6% of GDP this year.

“Export-orientated Ireland is exposed to an economic downturn in its major European trading partners, though its improving competitiveness mitigates the impact of such adverse external shocks.

“And with yields on Irish government bonds maturing after 2013 in excess of 7%, the timing and cost of Ireland’s return to the debt markets remain unclear. These concerns are reflected in our negative outlook on the rating, which we affirmed on 27 Jan,” Fitch said.

The agency sees as more positive the fact Ireland has stayed on track to meet and even exceed the underlying fiscal targets of the EU-IMF programme: “This was even though the headline deficit ended up at 13.1% of GDP last year, significantly higher than previous estimates, due to bank-related payments.

“And the strong political support for, and broader public acceptance of, a long-term fiscal consolidation plan have supported the adjustment process so far. Thursday’s yes vote, which was backed by most mainstream/moderate political parties, is another expression of this.

“It does not add to the voter discontent with fiscal consolidation and reform that characterised, for example, the Greek elections on May 6. However, nor is it likely to significantly alter this dynamic in the rest of Europe.”