Moody's Investors Service has announced it is reviewing Ireland's foreign currency debt rating, with a view to upgrading it to Aaa status, its top rating. The international rating agency is also examining the country ceilings for foreign-currency bonds and deposits in Ireland, Belgium, Finland, Italy, Portugal and Spain because of the creation of a single European currency.

The country ceiling acts as an upper limit on the ratings that can be assigned to foreign currency denominated debt in each country. It is not the same as the credit ratings Moody's assigns to governments based on their credit-worthiness.

"This action is taken in light of the strong likelihood that these countries - along with five others currently with Aaa ceilings - will be approved for membership as of January 1st, 1999 by the Council of Ministers when it meets in early May and will choose to join," Moody's said.

Once European Economic and Monetary Union begins, the foreign currency ceiling for the EMU bloc as a whole will be Aaa, Moody's said. "An Aaa foreign currency ceiling is warranted because these 11 countries would together represent a massive net creditor monetary bloc vis-α-vis the rest of the world," the rating agency said.

It added that the monetary bloc would also represent a very stable political environment with a very strong institutional framework.

But Moody's said it is also reviewing Ireland's sovereign foreign currency debt rating, which has been constrained by the current country ceiling.

Ireland's sovereign foreign currency debt rating is currently a notch below Aaa at Aa1 despite the fact that Ireland's local currency debt rating is Aaa.

Mr Adrian Kearns, head of foreign debt at the National Treasury Management Agency (NTMA), said the review process was "a formality" and Ireland was likely to be awarded Aaa status, probably in May.

He said that Ireland was joining a very select group of countries with Aaa ratings on both their foreign and domestic debt and this should enhance the NTMA's ability to market its debt.

Such a top rating would allow Ireland to raise foreign currency debt more cheaply, he said, as the NTMA should be able save five to seven basis points on the cost of the average deal.

Some ú8 billion or just above 25 per cent of Ireland's ú31 billion national debt is denominated in foreign currencies. As of December 31st, sterling debt accounted for around 26 per cent of this, dollar debt for 20 per cent and deutschmark debt for a further 20 per cent.

Around 13.5 per cent of the national debt is held in Swiss francs, 11 per cent in French francs while the balance is held in small amounts in a number of currencies including ecus, guilders and yen. Moody's also said that the Aaa rating of Ireland's local currency denominated treasury debt appeared secure at present.

But it added that the medium to long-term fiscal performance of each EMU member would continue to be closely monitored.