NAMA debt ruling staves off further rating agency downgrades
IRELAND may escape further downgrades of its creditworthiness after the preliminary EU ruling that purchases of bank loans by the National Assets Management Agency (NAMA) will not count on the official government debt figure, a leading European analyst has said.
Ciaran O'Hagan, who works for French bank Societe General in Paris, said the decision helps lift the immediate pressure off Ireland. The ruling by the EU statistics agency's Eurostat "will thus help validate the rating agencies' wait-and-see attitude, and ought to at least prevent Ireland falling below AA for Standard & Poor's and Aa1 for Moody's", he wrote in a research note.
Deprived
The main ratings agencies have threatened one more downgrade, having deprived Ireland of its top AAA rating earlier this year. They are concerned about the rapid rise in Irish public debt -- the fastest in the EU-15, the potential liabilities from the banks' guarantees and the poor outlook for economic growth.
However, although a "negative outlook" usually leads to a formal downgrade in the end, conditions have improved since mid-summer, when Moody's and S&P last cut Ireland's ratings.
Market sentiment has improved, although it is still poor, and the Government has clearly signalled that it intends continuing the fiscal correction plan in the Budget.
But this year's deficit target will be missed and borrowing is unlikely to fall below 12pc of GDP next year either. The Eurostat ruling was widely expected and would already be incorporated in market rates for Irish debt.
NAMA is giving the banks bonds worth €54bn in return for loans originally valued at €77bn but currently thought to be worth €47bn.
Under the Eurostat ruling this will not be added to the general debt as measured by the EU provided the loans are placed in a special investment company, controlled by NAMA but with majority private ownership.
- Brendan Keenan
Irish Independent
