S&P raises Ireland’s debt rating due to improving economy
Agency cites strong performance of exports and sustained recovery of domestic economy
Standard & Poor’s has become first major rating agency to restore an A rating to Irish sovereign debt since the country’s return to the international bond markets.
In a significant boost to the Government, the agency raised Ireland’s credit rating by one notch to A- from BBB+, with a positive outlook.
It cited an improved outlook for growth and more signs of recovery in the domestic economy as the rationale for its upgrade.
The agency also noted the faster pace at which National Asset Management Agency (Nama) was paying down its debt.
“From repayments of €10.5 billion to date, we anticipate that Nama will increase the pace of bond redemptions this year. This raises the possibility of a faster decline in levels of general government debt to GDP,” it said.
As part of the upgrade, S&P also raised its 2014-2016 average real GDP growth projections for Irish economy to 2.7 per cent from 2 per cent.
“The upgrade reflects our view of the brightening prospects for Ireland’s domestic economy, which we expect to underpin further improvements in the government’s financial profile, capital markets access, and financial system asset quality,” it said.
Minister for Finance Michael Noonan welcomed the upgrade, saying it highlighted the continued improvement in Ireland’s credit worthiness.
“I am particularly pleased that this upgrade is being driven by S&P’s view on the improved prospects for the domestic economy.”
“ This is a view I share and with thousands of jobs being created each month, strong exchequer performance and with positive high-frequency indicators, I am confident that we are moving in the right direction,” he said.
Last month, rival agency Moody’s upgraded Ireland’s credit rating for the second time in six months , citing the recent pick-up in economic growth, which it said would improve the Government’s debt metrics.
In its note on Ireland, S&P said employment growth in the Irish economy was coinciding with a gradual decline in long-term mortgage arrears.
However, while some lenders are reporting their total stock of non-performing loans as falling, this process is likely to be slow, it said.
The agency said its main concern related to banks’ mortgage books, noting that the high 13.7 per cent of all mortgage accounts that were more than 90 days behind in their repayments.
“If we include cases that are in forbearance and not in arrears - that is, repayments have been temporarily postponed or restructured, as well as those that are less than 90 days past due and properties in possession, then a very high 26.5 per cent of all mortgage cases are in some form of difficulty.”
The National Treasury Management Agency’s chief executive John Corrigan said the upgrade underpinned the already strong investor sentiment towards Ireland and provides a “very supportive backdrop” for the remainder of its funding programme in 2014.
Today, Irish borrowing costs tumbled to a new record low on the back of the stimulus measures announced by the European Central Bank on Thursday.
Yields on Irish benchmark 10-year bonds fell to a record low of 2.43 per cent, keeping Irish borrowing costs below that of the US for first time since 2007.