International credit ratings agency Standard & Poor's has reaffirmed its debt ratings for the Republic, citing the substantially strengthened public finances and the open, export-oriented and increasingly flexible nature of the economy.

The agency said it was maintaining its AA+ rating for long-term issues and its A-1 plus short-term rating.

It described the outlook for the Republic as stable and said growth in high-technology industries continues to diversify the economy and export base. Exports were forecast to reach 97 per cent of GDP in 1999, following real export growth of 20 per cent last year, it said.

Meanwhile, buoyant general government revenue, along with expenditure restraint, would result in a further general government surplus, equivalent to 3 per cent of GDP in 1999, Standard & Poor's said.

It added that moves to pre-fund the State's pension liabilities should further strengthen the Government's financial position.

However, the agency said its ratings for the Republic were constrained by a number of factors, including the continued vulnerability of the Irish economy to external shocks and the need for further reductions in the government debt burden.

Although this had fallen in recent years and was well below the EU average, it remained substantial in the context of the Republic's small, open economy, the agency said.

Standard & Poor's said it was placing greater emphasis on public finances in its analysis of the states which have joined Economic and Monetary Union (EMU).

"A positive outlook for, or an upgrade of, Ireland's rating remains contingent on the Government's ability to maintain sound fiscal balances and to sustain further reductions in the public debt," it said. The agency also warned that the low level of euro interest rates, along with sustained economic growth, had fuelled fears of overheating, particularly in the context of mounting wage pressure.

Under present economic and fiscal conditions, such overheating was expected to dissipate through a weakening of Ireland's competitive position, it said.

"The key risk to the outlook is that the loss of competitiveness - precipitated by the currently tight labour market conditions - overshoots that required to return the Irish economy to its sustainable growth path."