Credit agency affirms Irish 'AAA' rating

CREDIT RATING agency Fitch has affirmed Ireland’s “AAA” credit rating and declared its long-term outlook stable in a move that will give some assurance to international institutional investors that Ireland is a safe place to invest.

In a statement, Chris Pryce, director of Fitch’s sovereigns group, said Ireland was in the midst of a deep recession but that the strong initial starting point of public finances meant that net Government debt was just 29 per cent of gross domestic product (GDP), which is substantially below most of its AAA-ranked peers such as the UK.

“Economic fundamentals provide Ireland with the ability to withstand this stress and maintain its AAA status,” he said.

“However, this is also dependent on the Government remaining committed to fiscal consolidation over the medium term and the fiscal costs of financial sector support not exceeding current expectations.”

Mr Pryce added that the Government’s “willingness to be clear regarding the potential economic pain its plans will cause and its acceptance of the consequent electoral unpopularity” were “essential to its credibility”.

Fitch said the ultimate fiscal costs of restoring Ireland’s banks to financial health would prove “substantial”, but current estimates suggested that they would not be great enough to imperil Ireland’s credit status.

A triple-A credit rating is the highest possible.

Some doubt over Ireland’s creditworthiness was raised last week when rating agency Moody’s joined Standard Poor’s (SP) and Fitch in announcing it was reviewing the status of AAA-rated countries such as Ireland.

On Monday, SP cut Spain’s AAA rating to AA+, downgrading its long-term sovereign debt because of its deteriorating public finances. This was SP’s first downgrade of a AAA-rated country since Japan in 2001, and the first since the financial crisis erupted in August 2007.

Despite the reassurances made by Fitch, concerns about Ireland’s ability to raise money are growing.

Irish Credit Default Swaps have ballooned to 283 basis points, up eight points yesterday alone. This means the cost for Ireland to raise money on world debt markets is now higher than the cost for Poland and is almost as high as the cost for Greece, the eurozone country with the lowest sovereign rating.

“Obviously, this puts further pressure on Ireland’s funding requirement,” Bloxham Stockbrokers said in a note to shareholders yesterday.

Doubts about Ireland’s and other eurozone states’ ability to service their growing debts has pushed up the differential between the interest they must offer and that paid by Germany, the strongest economy in the zone.

The “spread” relative to Germany has soared to its highest since 1999.