Fitch upgrades Ireland to AA- on easing debt burden

Agency sees State’s debt burden on a ‘firm downward trajectory’

The move comes two weeks after fellow ratings firm DBRS Morningstar upgraded its rating on Ireland to a similar level. Photograph: iStock

The move comes two weeks after fellow ratings firm DBRS Morningstar upgraded its rating on Ireland to a similar level. Photograph: iStock

 

Fitch upgraded its credit rating on the Republic to AA- on Friday evening, saying it now expects the State’s debt burden to enter a “firm downward trajectory” relative to the size of the economy.

The ratings agency said it sees Irish government debt falling below the median level of 50 per cent of gross domestic product (GDP) of its other AA-rated countries by the end of 2023. In 2017, when Fitch last upgraded its position on Ireland, it was 25 percentage points below the median.

Fitch’s previous rating on the Republic was one level lower, at A-.

“Ireland’s debt burden relative to its national income is still far higher than the AA category median, at 104.7 per cent in 2020, but we expect it to decline materially in the forecast horizon, reaching 86.1 per cent in 2023,” it said, referring to a narrower measure of the economy, which strips out the activities of overseas multinationals with operations in the State.

The move comes two weeks after fellow ratings firm DBRS Morningstar upgraded its rating on Ireland to a similar level. Standard & Poor’s also has an AA- rating on Ireland. All are three rungs below the agencies’ top-notch AAA grade. Moody’s rating is two steps lower.

“The upgrade also reflects the economy’s resilience to the pandemic shock,” Fitch said. “Measured by modified domestic demand, which excludes the effects of [multinational] activity, the economy contracted by 4.9 per cent in 2020 and we expect a strong rebound of 6.8 per cent in 2021 and 6.5 per cent in 2022.”

The firm had previously been expecting growth rates of 3.5-4.5 per cent over the near term.

Growth performance

“The better than expected growth performance means that the permanent damage to output will be smaller and we now expect the economy to come close to its pre-crisis trajectory at the end of the forecast horizon,” it said.

Fitch also said that concerns about the impact of Brexit on the Irish economy had eased, while the country’s banks, which had contributed to the State needing an international bailout during the financial crisis, have all weathered the Covid-19 pandemic.

Earlier this month, National Treasury Management Agency (NTMA) raised €3.5 billion selling 10-year bonds, completing more than a third of its minimum full-year funding target less than two weeks into 2022.

The NTMA, which welcomed the Fitch move, aims to raise €10 billion - €14 billion in international bond markets in 2022, marking a decline of up to 46 per cent on the amount raised last year as the Government’s Covid-related spending eases.