Moody’s upgrades Ireland’s credit rating by two notches

Moody’s has upgraded Ireland’s credit rating by two notches to Baa1 from Baa3, with a “stable outlook”, it announced last night. This is the second time in six months that it has raised the State’s rating.

The New York agency listed three key drivers for the rating.

Firstly said that the recent pick-up in the State’s growth momentum will “speed up ongoing fiscal consolidation and put the government’s debt metrics on a steeper downward path than previously anticipated”. This would lead to a “significantly improved outlook for Ireland’s medium-term public debt trajectory,” it said.

The agency also said there had been a “very sharp reduction” in off-balance sheet exposures. The recovery in the property market resulted in a considerable reduction in government contingent liabilities, it said.

This was due to both the “accelerated asset sales of Ireland’s National Asset Management Agency (Nama) and to the disposal of the Irish Bank Resolution Corporation (IBRC) portfolio,” it said.

Recovering
Thirdly, it said Ireland had an improved credit rating relative to its peers. Compared to other Baa-rated euro counties including Italy and Spain the State's credit profile was "recovering more quickly" .

However it warned that the State’s credit profile remained constrained by “high public debt level, still-sizeable fiscal deficits and significant banking sector risks, including a high stock of non-performing loans.”

But it said such negative factors were partly offset by the States institutional and economic strengths as well as the Government’s “significant cash balance”.

Minister for Finance Michael Noonan welcomed the decision, saying it highlights the “significant progress that has been made in restoring investor confidence in Ireland, fixing the public finances and returning the economy to a path of sustainable growth and job creation.”

Key factors
"It is particularly welcome that Moody's have singled out the success of recent Nama asset sales and the IBRC liquidation as a key factor in their decision," he said.

The National Treasury Management Agency chief executive John Corrigan said the decision meant all three rating agencies rate Ireland at BBB+ or equivalent. This “clearly ranks Ireland as an investment-grade credit and reflects the confidence in Ireland shared by investors generally,” he said.

He was pleased that “one of the main drivers” was “the sharp reduction in Government contingent liabilities due in part to the accelerated asset sales by Nama.”

Moody’s also said the State’s short-term rating has been upgraded to P-2 from P-3. The agency also raised the State’s foreign and local currency country ceilings for long-term debt and deposits from Aa3 to A2 and country ceilings for short-term foreign deposits have been raised to Aa3 from A2.

The move comes four months after Moody’s restored Ireland’s credit rating to investment grade.