Ratings agency Moody's said today it was reviewing the strength of triple A sovereign countries and said Ireland had lost "considerable altitude" amid shrinking public finances.
But it added that it was too early to say whether Dublin's ratings would be changed. "We are currently reviewing the strength of AAA's, and we will publish a paper soon on 'how far can a AAA government stretch its balance sheet?'," said Moody's vice-president and senior analyst Dietmar Hornung, without giving further details. "In that context, we are monitoring the development in Ireland very closely," he told Reuters in an interview.
"It's obvious that within the triple A range Ireland has lost considerable altitude, but it's too early to conclude that we will go for a change," he said.
Ireland is rated triple A by the three major rating agencies and its outlook with Moody's is stable.
Earlier this week Fitch Ratings told Reuters Ireland's rising budget deficit could affect the outlook for its sovereign debt rating.
S&P warned on Friday it may cut its rating due to buckling public finances and revised its outlook for Ireland to negative from stable.
S&P issued similar ratings warnings since Friday for Greece, Spain and Portugal, and today it went ahead and cut Greece's sovereign debt rating to A-/A-2 with a stable outlook from A-/A-1.
Ireland, the former "Celtic Tiger", has suffered a stunning reversal of fortune as a domestic property crash and global slump plunged it into recession, forcing the state to bail out the three largest banks and borrow heavily to fund spending.
"There are some concerns regarding economic activity, economic strength and also the dynamics of debt metrics," said Moody's Hornung.
He said there were concerns about tax revenues given the reliance on real estate and financial services.
"Both sectors have done pretty poorly, it's obvious there is a loss in tax revenue," he said. "The other concern is contingent liabilities."
The deepening downturn has shattered public finances and the government raised its forecast on Friday for the 2009 budget deficit to 9.5 per cent of gross domestic product -- more than triple the 3 per cent EU limit -- from 6.5 per cent projected at budget time in October and 7.25 per cent forecast last month.
The government also predicted GDP would contract 4.0 per cent this year, from an 0.8 per cent drop forecast in October, making it Ireland's worst recession on record. GDP was forecast to fall 0.9 per cent in 2010, only rebounding to 2.3 per cent growth in 2011.
The finance ministry on Wednesday reiterated it was determined to cut the country's budget deficit to ensure the stability and sustainability of public finances.
"It is obvious that the degree of flexibility that Ireland has to show in order to keep its high level of creditworthiness is quite considerable," Hornung said.
"Ireland is still in a pretty favourable situation -- it is not only the low debt stocks, it is also being a part of the EU, being part of the EMU (European Monetary Union) and it is certainly a shelter to an imminent crisis situation," he added."
Reuters