S&P’s Ratings Services has raised its long-term foreign and local currency sovereign credit ratings on Ireland to ‘A+’ from ‘A’.
The upgrade reflects the view that Ireland is improving its fiscal performance, higher state asset sales, and robust economic performance, which have combined to lead to a quicker decline in net general government debt than had been previously forecast.
Ireland’s economic performance has surpassed that of most eurozone countries, with real GDP growth reaching 4.8% in 2014, compared to an average of 0.9% for the eurozone. The domestic economy, measured by gross national product, has expanded at a faster pace than GDP (which includes accounting effects from Ireland’s large multinational sector) for three straight years.
Ireland’s recovery is expected to remain steady with real GDP growth of 3.6% over 2015-2018. Much of the strong growth in the past few years has stemmed from the economy rebounding from a deep financial crisis. Nominal GDP in euro terms is only expected to return to the 2007 pre-crisis peak in 2015.
Improving economic conditions, as well as Ireland’s track record of meeting its fiscal goals since it exited its EU/IMF program in December 2013, underpin fiscal projections. The general government deficit declined to 4.1% of GDP in 2014, compared to the Excessive Deficit Procedure target of 5.1%. This includes a sizable dividend of E1.4 billion (0.7% of GDP) from the Central Bank of Ireland to the state–largely reflecting the transfer of the central bank’s interest earnings on government bonds back to government accounts. At 41% of GDP, the central bank’s balance sheet is one of the largest national central banks in the eurozone; Central bank financing to Ireland’s banks and the state have benefited the sovereign materially by lowering net borrowing requirements, and cutting the cost of financing.
Outlook
The outlook is stable. S&P stated that it could raise the ratings on Ireland if the government reaches a sustained fiscal surplus earlier than currently expected, or if the net general government debt, including that of NAMA, were to reduce faster than projected.
