Moody’s says outlook better for Ireland

Moody’s has intervened in the budget debate saying late last night that the Government’s continued compliance with fiscal consolidation targets would put upward pressure on the credit rating which has a key bearing on the State’s borrowing costs.

In upgrading its outlook for Ireland from negative to stable, the agency said achieving a primary surplus next year and beyond would improve the State’s debt-to-GDP ratio and improve the affordability of its debt.

Minister for Finance Michael Noonan declared this week that he aims to return such a surplus in the forthcoming budget, something which would necessitate greater a level of retrenchment than the Labour Party has been willing to accept in ongoing talks.

The rating agency “expects the government to re-establish debt-stabilising primary surpluses in 2014 and for those surpluses to expand subsequently, resulting in declines in the government’s headline debt-to-GDP ratios as well as improving the affordability of its debt,” Moody’s said in a statement.

Continued compliance
In respect of its actual rating on Irish debt, Moody's said upward pressure would develop "if the government continued to comply with its fiscal consolidation targets, and growth were to resume at a pace that, together with consistent primary government budget surpluses, would be sufficient to firmly position the government debt metrics on a downward path and ensure debt sustainability over the medium to long term".

Among the major ratings agencies, Moody’s has been an outlier with a credit assessment lower than its peers.

The National Treasury Management Agency said it was “pleased” with the outlook but disappointed Moody’s did not see fit to upgrade Ireland’s rating from its current Ba1 to investment grade.

Meanwhile, it emerged yesterday that Labour is growing frustrated at what it views as a degree of incoherence in Fine Gael’s approach to the budget.

Sources within Labour yesterday indicated that Fine Gael Ministers in bigger-spending departments, such as health, environment and justice, had yet to come up with concrete proposals that would enable them to fulfil their end of the bargain should the Coalition opt to pursue the €3.1 billion adjustment set out by the troika. Labour is seeking an adjustment closer to €2.5 billion.

Mr Noonan has said returning a primary budget surplus in 2014 was important to help secure market confidence.

'Restoring solvency'
Moody's noted the Government's progress in restoring "solvency" to the public finances and said a 2014 primary surplus would "expand and reduce the nation's debt-to-GDP ratio while improving the affordability of its debt".

A primary surplus is achieved when tax income is greater than the day-to-day cost of running the State when excluding interest payments on the national debt.

Based on current figures, however, the Government would have to cut the budget deficit to 4.8 per cent, as opposed to the 5.1 per cent in the bailout programme, to deliver a primary surplus. Labour sources said there was growing frustration within the party at the failure to reach agreement on a headline adjustment figure.

They expect that Fine Gael will hold out until exchequer returns for September are published on October 2nd before deciding on a target, which Labour is concerned could leave too little time to engineer “fair” proposals for individual departments.

Fine Gael is of the view that more focus should rest on the target of emerging successfully from the bailout rather than this year’s adjustment alone.