Irish State on track for further credit rating upgrades, says Davy

Nation’s debt-to-GDP ratio forecast to fall to less than a third of financial crisis

The Irish State, which saw its creditworthiness raised by a number of ratings agencies last year, is likely to see further upgrades as its debt burden continues to decline at pace relative to the size of the economy, according to Davy.

Davy economist Conall Mac Coille estimates the government debt is on track to fall to 39.7 per cent of gross domestic product (GDP) next year, less than a third of its peak level of 123 per cent a decade ago as the Republic was nearing the end of an international bailout programme.

The improvement was down to strong economic growth in the past decade, driven by the activities of overseas technology and pharmaceutical multinationals operating in the State. Davy also sees Irish debt declining to 77.8 per cent of gross national income by 2024.

While the market interest rate, or yield, on benchmark Irish 10-year government bonds has surged to 2.93 per cent from 0.84 per cent in the past 12 months amid rising central bank rates, Irish debt has outperformed 10-year Austrian, Belgian and French bonds, said Mr Mac Coille.


“This may continue,” he said. “Ireland’s strong GDP growth and buoyant tax receipts meant a government surplus of €5.3 billion (1 per cent of GDP) was achieved in 2022. Further, the National Treasury Management Agency’s strategy of long-term debt issuance means that Ireland’s funding requirements will be negligible and low compared with peers.”

The economist said that as debt ratios improve, “further ratings upgrades are likely”.

Moody’s, which had cut Irish debt to junk status during the financial crisis, Fitch and DBRS Morningstar each upgraded its rating on the State last year after the country demonstrated improved economic resilience through Brexit, the Covid-19 pandemic and initial turmoil caused by the Ukraine war.

Moody’s has an A1 rating on Ireland, which is four rungs below its top-notch Aaa grade. Its three main peers – Fitch, Standard & Poor’s and DBRS Morningstar – have each assigned ratings that are the equivalent of one rung higher than Moody’s.

Mr Mac Coille said that the key risks to Ireland’s debt dynamics were its reliance on corporate tax receipts and “inevitable” political pressure for income tax cuts and increased spending ahead of the next general election, due by early 2025.

The latest Sunday Times/Behaviour and Attitudes Opinion Poll, published over the weekend, shows that Sinn Féin remains the most popular party in the State with support at 31 per cent, followed by Fianna Fáil, at 24 per cent, and Fine Gael, at 23 per cent.

“The incumbent Fianna Fáil, Fine Gael and Green parties have lost support in opinion polls in recent years, with Sinn Féin set to be the largest party after the next general election,” said Mr Mac Coille. “However, there have been few calls across the political spectrum for policies that could be perceived as posing a risk to Ireland’s successful economic model, specifically on the corporate tax regime.”

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times