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New fears as credit rating slashed again

CONCERN is growing for the economic recovery as leading debt analysts Moody's slashed the country's credit rating yet again.

The international credit rating agency has downgraded Ireland's government bond ratings for a second time since the financial crisis began.

The announcement came as Government ministers prepared to meet to discuss how to make up to €4bn in savings in the Budget on Wednesday.

The departments of Social Protection, Education and Skills and Health and Children are all expected to face savage cuts, while those on lower incomes may be drawn into the taxation system. The Cabinet will also finalise a €40bn five-year capital programme, which is to be announced later this week.

However, the news this morning from Moody's could affect external investors' attitude towards Ireland.

Ireland's rating is now Aa2 from Aa1 last year, when Moody's warned of the effects of a "sudden and brutal economic and financial adjustment".

Moody's lead analyst for Ireland, Dietmar Hornung, said he expects economic growth to be low due to the weak banking and real estate sectors, and the fall in private-sector credit.

"Today's downgrade is primarily driven by the Irish Government's gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability," he said.





Property

The agency also signalled that Anglo Irish Bank may also require further funding.

International economic analysts have been closely monitoring the Government's plans for savings and the documents published on the banking crisis last Friday.

However, Finance Minister Brian Lenihan has outlined that a much rumoured property tax is not on the agenda in the up-and-coming Budget. An International Monetary Fund (IMF) report published last week showed that the Department of Finance told visiting IMF officials in May that a flat-rate property tax was under consideration.

And on Friday, it was revealed that consultants Merrill Lynch highlighted serious concerns about a blanket guarantee in September 2008 before the Government decided to press ahead with the guarantee scheme.

But Mr Lenihan said the documents, released by the Public Accounts Committee (PAC), supported the Government's decision to introduce the guarantee.

Oliver Whelan, of the National Treasury Management Agency, said that in investors' eyes, Ireland is firmly within the Double A category, despite the downgrade by Moody's.

"We'd prefer not to have a downgrade but there is certainly some good news in it, the outlook has changed from negative to stable," he said.

clairemurphy@herald.ie


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