Moody’s: Credit line may be needed

Ireland might need a precautionary credit line when the country exits the EU/IMF bailout programme in November, the credit ratings agency Moody’s has said.

“Although it is probably too early to say that Ireland’s market access has returned to normal, we would expect — unless there is a material change in the local economy or international market circumstances — that Ireland would only need to obtain a precautionary facility from European institutions,” Moody’s, which has Ireland at a non-investment grade, said in a note.

Chief economist with Goodbody Stockbrokers, Dermot O’Leary, issued a note earlier this year also recommending that the Government secures a precautionary credit line before the programme exit.

Mr O’Leary said that when he issued the note in April, his argument was based on two points.

If there was a precautionary credit line in place, then it would enforce policy discipline because there would still be quarterly reviews by the troika. In the absence of these reviews, policy slippage could undermine the fiscal progress and economic flexibility that has been achieved, he said.

Moreover, there were many external risks including a slump in trade with our main trading partners.

Mr O’Leary said there is now a third reason — as a backstop facility if the banks need to be recapitalised following the stress tests next March.

It is believed that the NTMA has been active in the markets, buying up the tranches of the €7.6bn government bond which is due in Jan 2014, in an effort to maintain robust liquidity in Irish debt. The agency declined to comment.

Moody’s is the only one of the three big ratings agencies that has Ireland at sub-investment grade.

In the note, it said it may upgrade Ireland’s rating “if the Government’s continued success in achieving its fiscal consolidation targets, supported by a resumption of sustained economic growth, enables it to reverse the current debt dynamics and enhances its ability to re-access the capital markets on a sustained basis.”

A lowering of the rating may be considered should the Government miss its fiscal targets or the country’s economic outlook worsen, it added.


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