Moody’s upgrades its credit rating on the Republic to A1

Ratings agency expects Government’s debt burden to keep declining

Moody's upgraded its credit rating on the State on Friday evening by one notch to A1, saying the Republic has demonstrated improved economic resilience through Brexit, the Covid-19 pandemic and turmoil so far caused by the Ukraine war.

The agency said noted that the Government’s debt burden has declined against the backdrop of robust economic growth, and that it expects this to continue in coming years.

Still, the ratings agency's new stance, which is four rungs below its top-notch Aaa grade, remains one level below the ratings that its three main peers – Fitch, Standard & Poor's and DBRS Morningstar – have assigned to the State.

“Ireland’s economic resilience has improved in the recent past, as is demonstrated by its handling of the pandemic, and it appears well positioned to weather the economic fallout of Russia’s invasion of Ukraine,” Moody’s said in a statement.


“While there is still uncertainty around the ultimate macroeconomic impact coming from the terms of trade shock caused by higher prices for energy and other inputs to economic activity, the Irish economy is well-positioned to absorb the negative impact of the conflict.”

The agency said the impact of any international agreement on corporate income tax reform “also appears manageable”.

While Moody’s said the size of the Republic’s economy and its openness make it more vulnerable to shocks, it noted that the doubling in size of gross domestic product (GDP) in the past decade, the country’s “strong track record of growth and growth potential, and competitiveness help to mitigate these vulnerabilities”.

The Government forecasts that nominal GDP will amount to €467 billion this year. The Government debt ratio has fallen from a financial crisis-era peak of 123 per cent in 2011 to 56 per cent in 2021 and Moody’s sees it declining further to below 40 per cent by 2025, driven by continued economic growth.

The Moody’s update comes four months after rivals Fitch and DBRS Morningstar each raised their ratings on Ireland to AA-. Standard & Poor’s also has an AA- rating on Ireland.

Junk status

Moody’s downgraded Ireland’s credit rating to so-called junk status in July 2011, taking the most pessimistic view among ratings firms on the State’s creditworthiness at the height of the financial crisis, after the collapse of the property market crippled the State. The agency upgraded Ireland a number of times after it exited an international bailout programme in 2013, most recently in September 2017.

“Brexit has had little impact on growth trends and Moody’s believes that Ireland’s credit profile has been and will remain resilient to this shock,” it said. “The UK has repeatedly delayed full post-Brexit border checks on imports from the EU, and when these are implemented this will likely result in short-term trade frictions and force Irish exporters to reorganise their supply chains.”

The move by Moody's came a day after the International Monetary Fund (IMF) said the Irish economic growth is projected to remain strong, but faces substantial uncertainty due to the indirect effects from the war in Ukraine.

In the latest health check on the country’s economy following its regular ‘Article IV mission’ to the country, the IMF said on Thursday evening that energy and commodity prices would likely push average inflation above 6 per cent this year, projected to average 6.5 per cent, before falling to 2.8 per cent next year.

In a statement at the end of their two-week visit, the Washington DC-based fund said: “Covid-support measures are being appropriately unwound in line with the economic recovery.”

In the short term, the Government must find “two-way fiscal flexibility” to strike the right balance between supporting the economy and containing inflationary pressures, it said.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times