Moody’s stands firm on Irish rating

The credit ratings agency Moody’s will not be changing Ireland’s sub-investment-grade rating despite the improved economic performance and this week’s successful syndicated tap bond issue.

NTMA chief executive John Corrigan blamed Moody’s subinvestment-grade rating of the Irish economy as part of the reason why it costs this country 300 basis points more than Germany to raise money on the debt markets.

Moody’s is the only ratings agency to have Ireland at junk status. A number of pension funds and institutional investors are excluded from investing in subinvestment-grade bonds.

In a note issued to the Irish Examiner, Moody’s said: “Unimpeded market access is an important precursor for Ireland to regain an investment grade rating, although it is not the sole criterion.

“An upgrade for Ireland’s rating depends on crucial fiscal progress, stabilisation of the very high debt burden, and a sustained return to positive growth,” Moody’s said, adding that uncertainty still lingers.

“Ireland’s growth prospects remain weak owing to the need for significant fiscal consolidation in coming years, the ongoing deleveraging in the private sector, and uncertainties with respect to external demand from the euro area and the UK.

“While GDP growth turned positive in third- quarter 2012, it continues to be mainly driven by net exports. Domestic demand remains weak as Irish households are still struggling with large amounts of home-loan debt and high unemployment, currently at 14.6%, and many SMEs are burdened by property-related loans,” the note said.

“Ireland’s public finances also remain vulnerable and its budget deficit of above 8% of GDP (2012 estimate) is among the largest of all Ba1-rated sovereigns. Achieving its 3% deficit target by 2015 remains a significant challenge,” the note states.

“Taking Ireland’s clouded economic outlook into account, we expect the debt to GDP ratio to stabilise at around 120% in 2013-14. Adding the Nama government-guaranteed debt, we estimate the ratio is set to peak at a very high level of around 140% of GDP,” the note added.