Tuesday 21 November 2017

Boost for economy as State's debt finally upgraded from 'junk' status

Klaus Reigling Managing Director, European Stability Mechanism joins Minister for Finance, Michael Noonan in a press briefing yesterday. Photo: Clodagh Kilcoyne
Klaus Reigling Managing Director, European Stability Mechanism joins Minister for Finance, Michael Noonan in a press briefing yesterday. Photo: Clodagh Kilcoyne

Rating agency Moody's has upgraded Ireland's government debt from "junk" to the more favourable "investment grade" status.

The country is now regarded as a lower risk investment by all of the main credit agencies for the first time since 2011.

Until last night, Moody's Ba1 rating suggested that there was a substantial risk of an Irish default -- a red flag for some lenders.

The new Baa3 implies a moderate risk of default. It is the same ranking as Spain.

"The growth potential" of the Irish economy, and last month's exit from the EU/IMF support programme "on schedule, with improved solvency and restored market access" are the two main drivers of the move, Moody's said. The end of the bank guarantee and stabilisation of the banking sector were also taken into consideration.

"As a consequence, our baseline expectation is that the Government will need to provide very little, if any, of the capital that the Irish banks may need following the upcoming EU-wide stress tests," the agency said.

As well as the rating upgrade, the agency changed the outlook for Ireland to positive.

Finance Minister Michael Noonan hailed the announcement, saying it would help cut borrowing costs for business and consumers.

"The upgrade will have benefits for the economy as a whole by putting downward pressure on the price of credit for companies and organisations in Ireland who are reliant on the financial markets for funding," he said.

The head of the National Treasury Management Agency (NTMA) John Corrigan also welcomed the move last night.

Analysts expect the Moody's move to mean new markets in the Middle East and Asia will open up for the NTMA, which sells bonds on behalf of the Government.

That's because money managers use the views of rating agencies as a handy guide to investment risk -- in some cases funds are barred from buying any bond with a so-called junk rating from any of the three main agencies, Moody's, Fitch and Standard & Poor's.

Earlier, senior government figures downplayed the importance of the hoped-for Moody's upgrade, as fears grew that it could be delayed until May, after ratings for the main banks were lowered in December.

While the outcome was not known in advance it was known that some kind of update from Moody's would be issued because it had been scheduled under a new reporting calendar introduced by the European Union at the start of this year.

Each of the main rating agencies must now issue an update on each euro area once every six months, and flag the dates in advance. Fitch Ratings will make its next announcement on Irish debt on February 21, while Standard & Poor's is due to make its next update in June, under the new rules.

The Moody's update was the one that mattered because it was the only one of the main rating agencies that classed Irish government debt at the riskier end of the spectrum.

Before the banking and debt crisis, Ireland benefited from Moody's top Aaa rating -- the mark of a country where the risk of default was regarded as negligible.

Donal O'Donovan

Irish Independent

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