Business Irish

Tuesday 12 December 2017

Moody's says last Budget a wasted opportunity to slash State debt

Minister for Finance Michael Noonan holding the 2015 budget at Government buildings.
Minister for Finance Michael Noonan holding the 2015 budget at Government buildings.
Colm Kelpie

Colm Kelpie

Public debt is likely to fall at a slower pace than expected because fiscal policy has been "significantly" softened, Moody's has warned.

The credit ratings giant said that while the economy was recovering at a reasonably strong rate, Budget 2015 was a "missed opportunity" to reduce debt further.

It said elevated debt levels were among the risks to recovery, along with remaining weaknesses in the banking system. And it warned that budgetary pressures could yet arise from public sector pay talks and the promise of further income tax cuts.

The agency said the strong investment performance underway here will require a pick-up in bank lending, yet it pointed out that the banking sector remains weak.

And it backed the Central Bank's mortgage deposit rules, describing them as a sensible way of reducing the risk of another credit-fuelled housing boom.

Kathrin Muehlbronner, senior credit officer at Moody's, said the economic performance was strong last year with growth estimated at about 5pc. However, like the Central Bank, Fiscal Advisory Council and International Monetary Fund, it said the 2014 growth figure had been "flattered" by a strong export performance.

"However, we believe that the strong growth in exports is unlikely to be repeated as it was partly due to special factors related to offshore production activity," Ms Muelbronner said, echoing the comments from the Central Bank yesterday.

Moody's said it expects growth rates of 3.8pc this year and 3pc in 2016.

"While this would be an outstanding performance in the European context, it only brings Ireland's growth performance since the crisis closer in line with that of some of the stronger growth countries in euro area," the agency said, in its latest assessment.

It said risks from the banking sector to the government's balance sheet have been reduced, and that government finances will benefit from the savings on interest spending from the deal done to repay IMF loans early.

"However, the ratings agency notes that fiscal policy in 2015 is being loosened significantly compared with earlier commitments from the Government," Moody's said.

"As such, the 2015 Budget means that Ireland's elevated debt levels will likely reduce at a slower pace than initially expected."

The agency also raised concerns that the strong growth in corporate investment needs to be sustained through bank lending.

"Given the persistent weaknesses in the banking system and the still high leverage of many domestic companies, this is by no means assured," Moody's said.

Moody's said it expects the deficit to be reduced further over the coming years.

Irish Independent

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