Credit Downgrade Looms For Ireland

Ireland's credit rating is expected to be hit with another downgrade from a European ratings agency.

The State's repaying credentials have been put on review for a possible downgrade by ratings agency Moody’s after concerns over the increased budget deficit and pace of the recovery.

Moody’s said the move was prompted by “increased uncertainty” over Ireland’s financial position following additional bank recapitalisations last week.

Ahead of the rating announcement, which is expected to take three months, the agency described Ireland's economy as having a "clouded outlook for the recovery of domestic demand” and said Ireland’s interest burden was set to rise significantly as a result of increased borrowing.

“Taking these three factors in account, Ireland is on a trajectory toward lower debt affordability over the next three to five years,” said Dietmar Hornung, Ireland analyst at Moody’s.

However, it's not all bad news for Ireland, with the agency praising the Government's ambition to bring the budget deficit within 3% of gross domestic product by 2014 as “challenging”. It said the growth forecasts “now look overly optimistic.”

Moody’s said it would complete its review in three months. Ireland is currently rated by Moody’s at Aa2. It said the country was being put on a review for a possible downgrade of one notch. This will mean yet higher interest repayment's on Ireland's hefty international borrowing.

Last week, the agency downgraded Spain's local and foreign currency government bond ratings by one notch to Aa1 from Aaa. Moody's said the decision was based on the country's weak economic growth prospects and its ongoing rebalancing of the economy away from the construction and real-estate sectors, which will likely take several years.

Moody's added that Spain was struggling with considerable deterioration of the government's financial strength and worsening debt affordability.

(DW/GK)