The Government can take some modest encouragement from the changing attitudes of two of the three major credit-rating agencies in their risk assessment of Ireland’s sovereign debt. Neither Fitch nor Moody’s has yet formally upgraded the country’s debt rating. However, Fitch has modified its view somewhat, switching from a negative to a stable outlook on sovereign debt. Moody’s, while retaining its junk status rating on the State’s debt, has conceded Ireland, unlike Greece, was now unlikely to inflict losses on bond investors.
This change in tone may well herald a more positive reassessment of Ireland’s creditworthiness by the rating agencies. Much could depend on what choices the Government makes in the budget on December 5th, in achieving the required savings of €3.5 billion. Equally, developments in the euro zone, which for the first time in three years has slipped back into recession with two quarters of falling output, have made the debt crisis harder to resolve.
Fitch’s more positive outlook will encourage the Government in its belief that Ireland can exit the EU-IMF bailout programme on its expiry next year. Moody’s, however, remains sceptical.It considers the State may either require a second bailout, or need to have a standby programme of official financing in place as a precautionary measure. Ireland was the first of the euro zone countries in a bailout programme to return and borrow successfully on financial markets. And yesterday, the National Treasury Management Agency (NTMA), which sought to raise €500 million in an auction of treasury bills, found its offer four times oversubscribed at a competitive rate.
Nevertheless, as Moody’s has pointed out, the challenges facing the Irish economy are formidable. A high level of government debt, which has yet to peak, allied to weak economic growth against the background of rising international financial uncertainty should not be underestimated. But neither should the difficulties these challenges present be exaggerated.