Fitch boost for Ireland rating
Ratings agency Fitch has raised its ranking of Ireland’s creditworthiness to a level last seen in late 2010, the month after the bailout of the State.
The agency removed the risk of a further downgrade, moving Ireland’s rating to a “stable” outlook, saying the Government was making progress towards an economic recovery.
The State was moved off “negative” outlook, reflecting Ireland’s continued progress on fixing its public finances and the improved options on its ability to fund itself.
This is the first positive move by a ratings agency since the EU-International Monetary Fund bailout. The last time Fitch ranked Ireland at a BBB+ rating on a “stable” outlook was in December 2010.
It has been on negative outlook or “watch” since April 2011.
Fitch said the risks surrounding the State’s fiscal adjustment path had “narrowed” and “become more balanced”. The correction in the public finances “remains on track” and “broadly in line” with the EU-IMF targets.
Fitch expects the 2012 deficit to be close to the 8.6 per cent target of economic output in 2012, despite the spending overruns. Government policy has so far managed to meet fiscal targets “without excess adverse impact” on economic growth in 2011 or 2012, the agency said.
Zero growth expected
Although it expects no growth in Irish gross domestic product this year, this would still be better than the euro zone average and “significantly better” than other peripheral euro countries, highlighting Ireland’s progress towards “economic growth”.
While noting several positives, including the Government’s return to the bond markets and long-term borrowing, Fitch said Ireland’s credit rating “remains constrained”.
The rating faces “downside risks” from high public and private debt, “persistent vulnerabilities” at the banks and its sensitivities to external demand and financial conditions.
Mortgage books at the banks were “a source of concern”, Fitch said, as bad loans were still rising and house prices had shown “only tentative signs” of stabilising in 2012, while house sales volumes remained low. The quality of bank loan books has “likely deteriorated” close to the worst-case levels in the 2011 bank stress tests.
Rival agency Moody’s, which has a more pessimistic view of Ireland, said the State still faced a “pretty mixed picture”. The only agency to rank Irish State debt as “junk”, Moody’s still believes the State may need outside financing at the end of the bailout next year.
Moody’s analyst Dietmar Hornung said Ireland could benefit from credit lines from the euro bailout fund. “If it is there, it certainly could be drawn upon – it is an option if needed.”
A deal to restructure the promissory notes being used to pay for Anglo Irish Bank would be positive for Ireland, he said, but there would need to be other positive developments for Moody’s to change its view. He said Bank of Ireland’s return to the public debt markets for the first time since October 2010 with the sale of a €1 billion covered bond was “reassuring”.
The targeted savings of €3.5 billion in next month’s budget struck “a reasonable balance” and there was “no alternative” if Ireland was to preserve its creditworthiness.