Budget 2017: Moody’s warns Ireland needs more fiscal buffers

Moody's, holder of the most cautious view of Ireland's creditworthiness among leading credit rating agencies since the financial crisis, has said its concerns about the State's finances remain unchanged after Budget 2017.

"The economy's high level of volatility due to the openness and large presence of multinational corporations implies that Ireland needs larger fiscal and financial buffers to deal with economic shocks than its peers," said Kathrin Muehlbronner, Moody's lead sovereign analyst for Ireland.

Ms Muehlbronner said the budget, which delivered €1.3 billion of spending increases and tax cuts, was looser than the €1 billion muted by the Government during the summer, it was “broadly in line” with Moody’s expectations.

The Department of Finance forecasts that the economy, as measured by gross domestic product, will expand by 4.2 per cent this year and 3.5 per cent in 2017. It sees the budget deficit narrowing to 0.9 per cent of GDP this year from 1 per cent in 2015, before falling to 0.4 per cent in 2017.

“We consider the deficit and debt projections realistic, with our forecasts closely in line with the Government’s in today’s budget,” said Ms Muehlbronner.

Credit markets

Moody’s took the most pessimistic line on Ireland among the world’s three largest credit ratings agencies during the financial crisis, downgrading the country to junk status in July 2011 as its rivals, Standard & Poor’s and Fitch, continued to give Ireland an investment grade.

While all three firms have raised their ratings on Ireland since it returned to international credit markets and exited its international bailout programme in 2013, Moody’s still has the lowest stance on the country’s creditworthiness. Moody’s rates Ireland A3, which is six levels below its top-notch Aaa rating.

The State's debt peaked at 123 per cent during the crisis and the Government estimates it will fall to 76 per cent by the end of December. Minister for Finance Michael Noonan moved in the budget to set a new debt-to-GDP target for the country of 45 per cent by the middle of the next decade, lower than the 60 per cent rate it is required to achieve under EU rules.