IRELAND’S SOVEREIGN debt was downgraded yesterday by credit rating agency Moody’s. It lowered the rating on Irish government bonds to Aa2 from Aa1 and altered its outlook from negative to stable.
Dietmar Hornung, Moody’s Frankfurt-based Ireland analyst said that the “downgrade [was] primarily driven by the Irish Government’s gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability”.
Taoiseach Brian Cowen yesterday urged people to look beyond one negative aspect in the report.
“I would ask the media to look at all of the report. We have enough of frankly this pervasive negativity all the time trying to take a bad interpretation of the report which, in fact, is supportive of what the Government is doing,” he said.
He said the National Treasury management Agency (NTMA) had made it very clear that we are a stable economy and we are forging ahead with taking decisions at a national level.
“It’s time to get the real message out,” he said.
“The message from outside this country is that Ireland is seen to be proactive in taking and confronting the challenges that it faces . . . that it is responding and getting ahead with doing the business as necessary.”
Moody’s decision had little impact yesterday on the market for Irish government debt.
By the end of trading, the yields on Irish government had risen only very slightly.
Moody’s stripped Ireland of its triple-A rating a year ago.
The current rating – Aa2 – is the third highest in the agency’s rankings.
Of the 16 euro zone states, eight have higher ratings and five have lower, with Italy and Slovenia sharing our Aa2 rating.
The timing of the decision, which was not flagged by the agency, came just one day before the Government attempts to auction off up to €1.5 billion in bonds to finance the budget deficit.
Credit rating agencies have been criticised in the past for the timing of their downgrade announcements, which have served to unnerve financial markets at moments of uncertainty.
In lowering the rating, Moody’s cited Ireland’s rising debt/GDP ratio and higher interest costs. It also referred to “weakened growth prospects” on the back of the downturn in financial services and construction and the “crystallisation of contingent liabilities from the banking system”.
More positively, Mr Hornung opined that the Irish economy was stabilising and that the country had “turned the corner”.
Speaking to The Irish Times, Mr Hornung said he believed that the agency's current assessment will hold steady for the "foreseeable future".
“Given Ireland’s wealthy and flexible economy and its very high institutional strength, these debt levels are commensurate with a Aa2 rating.
“Ireland’s demonstrated adjustment capability and its economic vitality – reflected for instance in its ability to attract foreign direct investment – are important characteristics that support the rating,” the agency said.
