Moody's claims State finances still vulnerable

Ireland’s economic prospects remain weak and its government finances vulnerable, according to Moody’s Investors Service.

The chief executive of the National Treasury Management Agency, John Corrigan, has described Moody’s “junk” rating for Ireland as depressingly low. He was speaking in the wake of the agency’s sale of €2.5 billion of 2017 bonds this week. He said investors were increasingly doing their own research independently of ratings companies.

Moody’s, which gave Ireland its top AAA grade in 1998 before the euro was introduced, cut the rating five times in the two years prior to assigning a junk rating in July 2011. Standard and Poor’s and Fitch Ratings each put Ireland at BBB+, three levels above non-investment grade.

Positive growth

“An upgrade for Ireland’s rating depends on crucial fiscal progress, stabilisation of the very high debt burden and a sustained return to positive growth,” Moody’s said yesterday in an emailed response to questions from Bloomberg.

“Ireland has made significant progress in these areas since the depth of its fiscal crisis, but uncertainties linger.”

The IMF cut its forecast last month for growth in Irish GDP by 0.3 percentage point to 1.1 per cent in 2013 and 2.2 per cent in 2014. Moody’s said it expected the debt-to-GDP ratio to stabilise at 120 per cent over the next two years.

Fiscal deficit

While S&P has a negative outlook on Ireland, Fitch raised its stance to stable from negative on November 14th, citing a narrowing fiscal deficit and a view that Irish banks probably would not need new State capital.

“We would expect Moody’s to only slowly change their outlook on Ireland,” said Owen Callan, an analyst at Danske Bank A/S in Dublin. “We could have some sort of turnaround after some further bond issues and an improving macro outlook later this year.”

The Government is aiming to exit its bailout by the end of the year. The bond sale on Tuesday was heavily over-subscribed, as was the sale by the Government of investments in Bank of Ireland on Wednesday. (Additional reporting Bloomberg)