Ireland’s credit rating raised to ‘A’ by S&P

Standard & Poor’s has raised its credit rating on Ireland, saying the move reflects its view of the country’s “solid economic growth prospects”.

In a statement released yesterday, S&P said it was raising Ireland’s long-term sovereign credit rating to ‘A’ status, from ‘A-’ and the short-term debt from ‘A2’ to ‘A1’.

“The stable outlook balances our view that government finances have improved and that financial system asset quality is on the mend, against the prevailing downside risks associated with eurozone trading partners’ uncertain growth prospects and the Irish Government’s still highly-leveraged balance sheet,” S&P said.

“The upgrade reflects our view of Ireland’s solid economic growth prospects, which we expect to underpin further improvements in the Government’s budgetary position,” it added.

The agency also revised its forecasts for GDP growth for 2014 to 2016 from 2.7% to 3.7%. Welcoming the upgrade, Finance Minister Michael Noonan said it provides further evidence that Ireland’s economic recovery has “firmly taken hold”.

“The upgrade reflects Ireland’s solid economic growth prospects, the continued strong management of the public finances and the progress that Nama and the Irish banks are making,” he added.

S&P’s move follows rival credit-ratings agencys Moody’s and Fitch returning Ireland to A-level investment grade earlier this year.

According to Mr Noonan, the latest upgrade will be of particular help next week when he meets with Chinese investors in Beijing and Shanghai.

“The return to investment grades, across all of the main ratings agencies this year, has reopened new markets to us across Asia,” he said yesterday.

S&P said that it expects early debt repayments by Nama to help reduce Ireland’s net general government debt by around 15% of GDP, to 103.5% by the end of this year. “We expect net general government debt to peak at 117% of GDP in 2013 and to decline to 91.4% by 2017. This pace of debt reduction stands out in the context of high and static public debt levels in most of the eurozone,” it added.

The agency also gave the thumbs-up to Ireland’s recovering banking sector.

“Our upward revisions to Ireland’s growth prospects also underpin our assessment of the improving health of its banks. We believe that credit losses will continue to decline through 2016 and pose less of a risk to sector profitability and, ultimately, government finances,” it said in its statement.

While Ireland’s foreign direct investment inflows — estimated at €30bn in 2013 alone — are likely “overstated”, S&P admitted that even on an adjusted basis they remain “exceptionally high”.

“Foreign direct investment is bolstering Ireland’s real GDP growth, which we now believe will average 37% over 2014 to 2016.”