Next government must keep focus on cutting debt Moody’s warns

Ratings agency Moody’s said on Monday that it would downgrade Ireland again if the next government were to pursue “a materially different fiscal policy, putting at risk the downward trend in the debt ratio”.

The ratings agency currently has a positive Baa1 rating on Ireland, but warned that Ireland still has a “very high government debt level” and with a general election fast approaching in 2016, Moody’s said it would downgrade Ireland if the next government were to risk the downward trend in the debt ratio.

Ireland’s debt to GDP ratio has started to decline from a peak of 120.2 per cent in 2012 to an estimated 97.4 per cent of GDP this year, while the budget deficit being is down from a peak of 13.5 per centof GDP in 2010 (excluding bank recapitalisation costs) to 4 per cent of GDP in 2014. Moody’s said it expects that the debt ratio will decline to around 88 per cent of GDP by 2018 if the economy continues to improve.

“We expect the economy to continue to grow strongly in the coming years, reflecting strong competitiveness gains since the crisis,” Moody’s said, but added that it would only upgrade Ireland further if the public debt ratio were to be reduced further at a rapid pace.

“Evidence of the authorities’ continued commitment to a strong pace of fiscal consolidation would also be positive for the rating”.

Last week investment bank Commerzbank warned that the rise of Sinn Fein at the expense of Labour should raise some concerns that "the fiscal stance may not be as tight in future as currently projected", given that Sinn Fein's policies imply a much greater role for the state in the economy.

Other “credit challenges” facing Ireland outlined by Moody’s include further improving the resilience of the banking sector, in particular accelerating the resolution of the very high level of non-performing loans.