Moody's does not see sovereign debt downgrades

Credit-rating agency Moody's does not expect to downgrade the sovereign debt of leading triple A-rated nations, including Ireland, despite the explosive growth of government debt.

"We do not expect downgrades in the near future of those countries rated triple A the US, UK, Germany, France and Spain - especially after the downgrade of Ireland, the most vulnerable triple A (from Aaa to Aa1 with a negative outlook," Pierre Cailleteau, the head of sovereign risk at Moody's said in a statement today.

Triple A-rated sovereign states were able to raise funds relatively cheaply in bond markets and their power to control budgets through growth, spending cuts and tax rises, Moody’s said in its Aaa Sovereign Monitor released today.

Loss of Aaa status would raise the cost of financing public debt, affecting government bond yields and, in turn raising interest payments on sovereign debt.

The report applied three medium term scenarios based on different assumptions, “benign”, “baseline” and “adverse” about macroeconomic trends and the prospects for financial assets now held by governments, such as Anglo Irish Bank in Ireland’s case and the loans to be taken over by Nama.

Under the adverse scenario, Ireland’s budget balance would rise to 12.2 per cent and its debt to GDP ratio rise to 130 per cent. The percentage of revenue required for dent repayment would rose to 23.7 per cent.

The benign scenario forecasts an 86.6 per cent rise in the debt/GDP ratio and a budget deficit of 7.6 per cent.