Ireland is downgraded by leading credit rating agency (Irish Times)
Ireland has lost its prized “AAA” credit rating from ratings agency Standard Poor’s, which yesterday downgraded its outlook for the Irish economy, blaming the deterioration in public finances.
In a move that will make the cost of Government borrowing more expensive and put further pressure on the economy, Standard Poor’s lowered Ireland’s rating from AAA, the top rating possible, to AA+.
The credit ratings agency said this new rating was on a “negative” outlook, indicating that the State’s faltering tax revenues may result in further downgrades.
Analysts at Standard Poor’s said the worsening public finances would “require a number of years of sustained effort to repair” and that they believed that additional public support would be necessary to prop up the Irish banking system, beyond the €7 billion that has already been committed.
The ratings agency said the total gross fiscal cost to the Government of supporting the banks could reach €15-€20 billion, or as much as 11 per cent of gross domestic product, partly as a result of future writedowns in the value of the banks’ assets. The cost of insuring Irish Government debt against default increased sharply yesterday on the credit-default swaps market.
Fine Gael finance spokesman Richard Bruton said Standard Poor’s assessment was “yet more evidence of the Government’s appalling handling” of the boom-to-bust economy.
“This is bad news for Ireland at a very bad time. Standard Poor’s decision to downgrade Ireland’s credit rating will make it even harder for the economy to recover. Yet the need for a credible strategy to get the country out of this mess has never been greater,” Mr Bruton said.
The Fine Gael deputy leader said the Government would have to “dig even deeper to balance the books” in its emergency budget next Tuesday.
“It is startling that Ireland is one of the first economies to be downgraded by Standard Poor’s,” he added.
Ireland first received the “AAA” rating from Standard Poor’s in October 2001.
However, Trevor Cullinan and Frank Gill, Standard Poor’s analysts based in London, said in a report published yesterday that the downgrade reflected their view that the measures required to repair the State’s troubled fiscal position were “on a scale greater than factored into the Government’s current plans”.
The Irish economy will “materially underperform” the euro zone economy over the next five years, recording minimal growth in real and nominal GDP during the period, they said.
Standard Poor’s said it was “concerned” that a “credible” strategy for economic recovery would not emerge until after the next general election, which is due to take place by 2012.
“The ratings on Ireland could be lowered again if the public finances weaken substantially further than what we currently assume,” it said.
It also noted that Ireland’s ability to benefit from a pick-up in exports once the global economy recovers would be “more muted” than in the past because of the weak rate of sterling versus the euro.
The ratings agency downgraded the credit ratings of Spain, Greece and Portugal in January as a result of the economic crisis that has seen several euro zone countries run up high deficits and announce measures to bail out banks.
The two other main credit ratings agencies, Moody’s and Fitch, have both placed their “AAA” rating for Ireland on a “negative” watch.
The Government is due to publish its latest exchequer returns figures on Thursday. They are expected to show a continued decline in VAT revenues. The Taoiseach hinted last week that it may not be possible to keep to its target of limiting the budget deficit of 9.5 per cent of GDP.
In January, the European Commission forecast that Ireland’s budget deficit may widen to 11 per cent of GDP this year, almost four times the European Union’s approved limit, and the worst in the euro zone.