Ireland’s debt position needs to “dramatically” change to regain AAA rating

Ireland would have to "dramatically" improve its sovereign debt situation before it could return to a AAA rating with Standard & Poor's, a director with the ratings agency said at a media briefing in Dublin on Thursday.

Kyran Curry, director of sovereign & international public finance with S&P in London, declined to put a timeline on when Ireland might regain its AAA status, which was lost in the wake of the financial crisis in late 2008.

But he said it would not be within the two to three year time horizon that S&P applies for its sovereign ratings.

“That’s a long path [TO AAA]. That’s another five to six notches,” he said. “The weakspots are the debt burden. It’s off the scale compared to other sovereigns we follow. It’s heading in the right direction but we need to see continued support for fiscal consolidation [AND]continued deleveraging.

Ireland’s net Government debt as a percentage of GDP is currently more than 120 per cent compared with just 20 per cent a decade ago.

Mr Curry said would be “too difficult” to put a timeframe on when this might happen, adding that Ireland would need to demonstrate a “ sustained record of paying debt down over the medium period”.

“To talk about a AAA rating at this point is well, well beyond our ratings horizon.”

He noted that it took Australia seven years to regain its AAA rating some years back.

S&P upgraded Ireland to A- from BBB+ on June 6th, with a positive outlook. Mr Curry praised the actions taken by the Irish Government over the past four years to adjust its exchequer finances, and said trends in jobs growth, foreign direct investment, consumer sentiment and retail sales are positive.

Mr Curry said S&P was aware of the recent local election reverses experienced by Fine Gael and the Labour Party, with Sinn Féin and independents, who oppose the imposition of further austerity measures, gaining significant support.

However, he said the agency’s view remains that the fiscal “discipline” that emerged from the EU-IMF Troika bailout programme would “broadly” remain in place and that the “gains in fiscal consolidation will continue”.

“The biggest risk is on expenditure and we’ve seen some slippage in healthcare and education, that’s a clear weakness,” he said. “Nonetheless, we still broadly buy into the argument that there is sufficient bi-partisan [POLITICAL]agreement on this going forward ...and that orthodox fiscal policies will remain in place.”

When asked if he felt that the parties and independent TDs who are opposing the imposition of more austerity here would reverse many of the policy positions that have been taken since 2008, Mr Curry said: “Those parties that are gaining more influence, we still believe that while they can throw stones, once they are in power and in a position to do something about it, things might be slightly different. Broadly speaking, in Ireland’s case, we think it’s very unlikely that the path that Ireland has followed over the past three to four years would dramatically unwind.”

S&P also said that while it was unlikely that Irish banks would fail the pan-European capital stress tests currently underway, they would need to significantly improve their capital positions before being considered for a significant re-rating by the agency.

It said there was still a high proportion of non-performing loans on their books and that significant risk factors remain, even when compared to other European peripheral economies. The agency said Bank of Ireland was "six to nine months ahead of AIB" in terms of its return to normalisation.