Fitch, one of the world's three leading credit rating firms, stuck to its A rating on Ireland on Friday evening, saying while economy and State's finances are rapidly improving, risks surrounding Brexit and global policies on tax remain.
The Fitch stance on the Republic stands five levels below its top AAA credit rating. It also ranks one notch below rival Standard & Poor’s (S&P) rating for Ireland, but on step above that of Moody’s.
Brexit risk
“Ireland’s sovereign ratings are supported by strong institutions and a wealthy, flexible economy,” Fitch said, adding, however, that likelihood of the UK leaving the EU single market raises “risks that Ireland will eventually face trade and mobility barriers with its biggest economic partner.”
Moreover, possible changes to corporate tax policies in the US, where president-election Donald Trump has vowed to lower corporate rates, and Europe is another important downside risk, it said.
“Irelands’ low and stable tax regime has helped attract multinationals over the last two decades, but it could face increased competition and/or pressure if other countries apply a similar model,” it said.
Fitch was the last of the main ratings agencies to strip Ireland of its AAA rating at the onset of the banking and fiscal crisis in 2009 that would tip the State the following year into a €67.5 billion international bailout.
Middle line
During and after the crisis, Fitch has largely adopted the middle line among the three agencies when assessing Ireland’s prospects. It maintained an “investment grade” rating on Ireland throughout the downturn, even as Moody’s cut the State’s creditworthiness to “junk status”. However, Fitch trailed S&P when it came to upgrading its ratings again after the Government exited the bailout in 2014.
Fitch estimates gross Government debt fell to 75 per cent of gross domestic product by the end of 2016 from 120 per cent in 2012. However, the most recent ratios have been flattered by upward revision to GDP estimates, largely on the back of multinationals’ activities in Ireland.
