Moody’s decision to upgrade Ireland’s sovereign rating reflects the improvement of key credit fundamentals and the lower risk of a reversal of the fiscal consolidation.
Moody’s has upgraded Ireland’s long-term government bond ratings to A3 from Baa1. The short-term rating was affirmed at Prime-2. The outlook on the ratings remains positive.
The decision to upgrade Ireland’s sovereign rating considers:
(1) Ireland’s key credit fundamentals have continued to improve at a faster pace than expected even a few months ago, including a stronger economic recovery and a more marked reduction in the public debt ratio, which stood at below 94% of GDP by end-2015. The government’s public finances also continued to improve at a rapid pace last year;
(2) In Moody’s view, the risk of a reversal of the fiscal consolidation seen over the past several years is low. The recent political agreement between the two largest parties in parliament and the recent election of a minority government led by Fine Gael, which has established a strong track record of fiscal management over the past several years, give comfort that the budget deficit will be reduced further in coming years.
The oulook on the ratings remains positive and reflects Moody’s view of a likely continuation of these trends in the coming years. While the rating agency expects economic growth rates to moderate compared to the outstanding growth of last year, Ireland will likely see continued robust growth on account of substantial competitiveness gains as well as strong export and productivity growth supported by a large and expanding multinational sector. The strong growth in turn will facilitate a continued reduction in Ireland’s public and private debt levels.