Rating agencies upbeat about Irish fiscal and bank reforms

RATING PROSPECTS:IRELAND'S RESPONSIBLE approach to managing its finances means its rating prospects have not been harmed by recent speculation against peripheral euro zone countries' debt, two ratings agencies said yesterday.

Ireland, widely considered the euro zone’s weakest link a year ago as an abrupt slide from the Celtic Tiger growth boom hit State coffers, has been under less pressure since tough spending cuts and bank reforms were introduced at the end of 2009.

Moody’s, which rates Ireland at AA1 with a negative outlook, sees rising funding costs on market turmoil sparked by an escalation of Greece’s debt crisis as a risk. Yet the agency is upbeat about Irish fiscal and banking reforms, said Dietmar Hornung, senior analyst at Moody’s.

“Ireland’s characteristics are different from some of the periphery countries,” Mr Hornung said.

“The adjustments that are under way are the right approach in our view and by this progress we are fundamentally reassured.”

The premium investors’ demand to hold 10-year Irish bonds rather than benchmark German bunds fell to 233 basis points (2.33 percentage points) yesterday from an intraday peak of 275 on Wednesday, well below the Greek spread of 757 basis points

Rival ratings agency Fitch, which has cut Ireland furthest from AAA to AA-, said the rating remained on a stable outlook.

“The Irish Government has given itself very strong credibility with the market and other governments,” said Chris Pryce, Fitch director for ratings in western Europe, “and I think it deserves that credibility.”

The third main ratings agency, Standard & Poor’s, which this week cut Spain’s and Portugal’s credit rating and slashed Greece to junk status, rates Ireland at AA with a negative outlook.

Ireland is seen as emerging from the euro zone’s longest running recession in 2010 and brighter data for the start of the year bode well.

“We also take comfort from the fact that the indications are that the recession in Ireland is ending sooner than we expected,” Mr Pryce said. “The first quarter of the year could have seen positive GDP growth, which is six to nine months earlier than we were expecting.”

Revised data last week showed Ireland had the biggest deficit in the EU last year compared with the size of its economy at more than 14 per cent of GDP due to the cost of the bailout for Anglo Irish Bank. The Government, which has earmarked more funds for Anglo, said it remained on track to cut the deficit to the EU limit of 3 per cent by 2014.

Standard & Poor’s and Moody’s have said the deficit revision would not affect their ratings.

“We have a constructive view on the Irish efforts to adjust to this difficult economic environment,” said Moody’s Mr Hornung.

Unlike Greece, Ireland does not face any major bond repayment deadlines this year and has built up a comfortable buffer of funding via a series of successful bond auctions and syndications over the past year.

“The Irish Government is not, like the Greek government, forced into the market by maturing debt and things of that nature,” Fitch’s Mr Pryce said. “It can choose when it goes, within limit, so that’s good.” – (Reuters)