Blow as Fitch fails to upgrade credit rating

The credit ratings agency Fitch has retained the BBB+ rating for Ireland while also maintaining a stable outlook.

In a blow to the Government’s hopes of making sovereign debt more attractive to foreign investors, Fitch said it does not anticipate that rating will change over the medium term.

Last month Moody’s upgraded Ireland from junk status to investment grade. This enabled many institutional investors to buy Irish debt. Some pension funds and other type of investment funds are prohibited from buying debt with a sub-investment grade.

However, a further tightening of Irish bond yields depends on further upgrades to the country’s credit rating among the three main agencies, including Standard & Poor’s.

Before the financial crisis in 2008, Ireland had a ‘AAA’ credit rating.

Fitch noted that the country had successfully completed the three-year EU-IMF bailout programme combined with a successful return to the markets. The NTMA issued a 10-year bond in January at a yield lower than Spanish or Italian sovereign debt.

The fiscal deficit is forecast to fall to 4.8% at the end of this year, which is down from 9% in 2009, excluding bank recapitalisations. However, gross debt is forecast to peak at 124%, which means primary surpluses are needed for an extended period. A future upgrade depends on the debt burden being put on a sustained downward trend.


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