Fitch revises Irish outlook to positive

The credit ratings agency Fitch has revised its outlook for Ireland to positive from stable, affirming its long-term rating at A-.

It cited “strengthening recovery in domestic demand” and “favourable financing conditions” as key rating drivers.

The agency has also said it is more confident of a decrease in the budget deficit to below 3 per cent of GDP in 2015 and noted a decline in contingent risks from the banking sector since its last review.

The issue ratings on Ireland’s senior unsecured foreign and local currency bonds have also been affirmed at A-.

The Country Ceiling has been affirmed at AAA and the short-term foreign currency IDR (issuer default ratings) at F1. The rating of National Asset Management Agency’s (Nama) guaranteed issuance has also been affirmed at F1 in line with the sovereign rating.

In a statement, Fitch said among the key ratings drivers behind the status revision was the strengthening recovery of domestic demand and favourable financing conditions.

Tax revenues grew by 11.7 per cent (in the first half of 2015) compared with the same period in 2014, partly due to very strong corporate tax receipts. However, VAT and personal income tax also grew by 8 per cent and 6 per cent, respectively.

“On the expenditure side, Ireland is benefiting from the very low interest rate environment,” it said.

“For example, the €18 billion early repayment of the IMF loan will result in substantial interest savings over the medium term and illustrates the sovereign’s financing flexibility.”

The agency said that based on the performance in the first half of the year, it is “increasingly confident” the budget deficit will fall below 3 per cent and the first primary surplus will be reached since 2007.

“This is in line with the Excessive Deficit Procedure target set at the start of the official programme in December 2010, highlighting Ireland’s fiscal credibility,” it said.

“The solid economic recovery and improving budget deficit imply a declining debt trajectory over the medium to longer term.”