Moody's: Government debt to top 293% of tax revenues

In 2014, general government debt was at around 308% of tax revenues, according to Moody's figures. Picture: Leah Farrell/RollingNews.ie

Government debt will reach over 293% of tax revenues this year, reflecting the huge costs of the Covid-19 economic crisis, but the economy will likely soon be back to growth, Moody's Investors Service has forecast. 

In an update on Ireland's creditworthiness, the ratings firm said the State's finances are supported by the strengths of the economy but high debt levels, Brexit, and potential global changes to multinational corporate taxes present "challenges". 

Moody's said the exchequer has so far announced €20.5bn, or 6.2% of GDP, in support measures for the economy since the onset of the crisis in March. The figure doesn't include any costs linked with the €2bn credit guarantee scheme and the €2bn recovery fund.

In GDP forecasts which are in line with those projected by the EU and Irish organisations, it projects the size of the economy will slide by 8.5% this year, and will grow by 6.3% in 2021.

In GDP terms, government debt grows to over 68% this year, up from 57.3% in 2019, and will ease to around 67% of GDP in 2021, according to Moody's forecasts.

When measured against tax revenues, debt tops 293% this year, up from 233% in 2019, before easing back to over 279% of tax revenues in 2021.                                                                                                                              

In 2014, general government debt was at around 308% of tax revenues, according to Moody's figures.

However, debt interest payments this at 5.3% of revenues compares with 11.5% in 2014.    

On the ratings outlook, Moody's has a stable outlook on Ireland's creditworthiness, which means that it is not minded any time soon to upgrade or downgrade the country's "A2" rating.         

The country's creditworthiness is "supported by a prudent policy framework that should yield – after the coronavirus crisis has faded – a reduction in public debt, albeit at a slower pace than pre-crisis as the government is shifting its focus to raising public investment in infrastructure and housing", it said. 

"At the same time, Brexit remains a significant downside risk, as is the potential impact of the global corporate tax reform which could affect new investment by multinational corporations in Ireland," Moody's said.  

"At this point, we expect the impact of the coronavirus outbreak on growth and fiscal metrics to be transitory," it said.            

"Our credit view of Ireland reflects the strong growth and fiscal track record of the past few years and our expectation that the positive trends will resume after the economic shock triggered by the coronavirus outbreak has faded," Moody's said.  

"However, challenges will remain in the form of elevated high public debt levels and a relatively high degree of economic volatility," it said.

In the wake of the last financial crisis and the bailout, Moody's was the last of the ratings firms to restore Ireland's creditworthiness to investment grade and attracted the ire of the National Treasury Management Agency.     

In its latest research, Moody's said that there are declining risks from Irish banks, but notes there is political risk "informed by Brexit-related uncertainty".