Fitch places Ireland's debt rating on negative watch
RATINGS AGENCY Fitch said yesterday that Ireland was at risk of losing its “AAA” debt rating – the highest available – because of the sharp declines in tax revenue collected by the Government in the first two months of 2009.
Fitch placed the country’s debt rating on a negative watch, which indicates that it is considering downgrading Ireland’s rating.
Such a move would increase the cost of borrowing for the Government, which may have to borrow more than €20 billion this year to finance the running of the State.
Fitch also said its “AAA” rating on the debt of five banks that fall under the Government guarantee scheme was being put on a negative watch. The downgrade relates to the debt of AIB, Anglo Irish Bank, Bank of Ireland, EBS Building Society and Irish Nationwide Building Society.
As recently as January, Fitch confirmed Ireland’s “AAA” rating as stable. However, the tax receipts collected in January and February were again below the already low expectations built into the Government’s January forecasts, Fitch noted, with the result that the State deficit has worsened.
“This will intensify the policy challenges facing the Government as it seeks to tighten fiscal policy further than anticipated in the midst of a steep recession and raises the risk of fiscal slippage,” Fitch said in a statement.
The cost of insuring against a default on Irish sovereign debt rose yesterday but remained below the peak recorded in mid-February. The chances of Ireland defaulting on its debt is “very, very remote”, Fitch analyst Chris Pryce said.
Exchequer returns data published by the Department of Finance on Tuesday showed that tax receipts from the struggling Irish economy were down almost 24 per cent or a sum of €1.8 billion on the same period last year.
The worsening picture for public finances forced the Government to announce an emergency budget to be held in the first week of April in which it will seek to raise €2.5 billion in addition to €2 billion in cuts already in train.
Fitch said without this further action the 2009 deficit could widen to 11.5-12 per cent of GDP, or four times the limit specified by the EU’s Stability and Growth Pact.
The ratings agency said it would reassess the medium-term prospects for Ireland’s public finances in light of the deterioration revenue prospects, accelerating economic decline and the measures announced in the mini-budget.
The decision to reweight a country on negative watch is usually taken within six months.
Fitch first awarded the top “AAA” rating to Ireland in 1998. Its decision to downgrade the outlook for the rating from stable to negative follows a move by ratings agency Standard Poor’s, which cut its outlook to negative in January.
Meanwhile, the share price of the main Irish banks made a recovery in trading on the Iseq index yesterday, with Bank of Ireland closing up 6 cent at 18 cent from its record low closing price of 12 cent on Thursday, and AIB finishing up 7 cent at 34 cent.