IRELAND: Fitch Upgrades Ireland to ‘A’ Outlook Stable

Monday February 8 2016

On 5th February 2016, Fitch Ratings upgraded Ireland’s Long-term foreign and local currency Issuer Default Ratings (IDRs) to `A` from `A-`. The Outlooks are Stable. The issue ratings on Ireland`s senior unsecured foreign and local currency bonds have also been upgraded to `A` from `A-`. The Country Ceiling has been affirmed at `AAA` and the Short-term foreign currency IDR and short-term commercial paper at `F1`. The rating of National Asset Management Ltd.’s (NAMA) guaranteed issuance has also been affirmed at `F1`, in line with the sovereign rating.

The upgrade of Ireland`s IDRs reflects the following key rating drivers and their relative weights:

Public debt dynamics continue to improve, reflecting a combination of strong growth and a return to a primary budget surplus in 2014. Fitch now estimates gross general government debt/GDP at 96.6% at end-2015, compared with 105% in our previous review and from a high of 120.2% in 2012. The revision is partly the result of a much higher than expected GDP deflator in 2015, with Ireland benefiting substantially from positive terms of trade. According to our baseline scenario (which does not include any positive stock-flow adjustments from the banking sector), public debt will continue to fall steadily to 70% by 2024, although this is still well above the `A` median of 44.5%.

Ireland`s economy continues to expand at a brisk pace, with real GDP growth averaging 7% in the first three quarters of 2015, the highest figure among developed economies. Although investment growth remains volatile, the Irish economy is exhibiting much more solid fundamentals that will help sustain momentum in the short term. Stronger balance sheets, a continued strengthening of the labour market and rising household consumption should underpin robust domestic demand growth in 2016. Fitch expects the economy will expand by around 4% this year, compared with 2.4% in our previous review.

Fiscal consolidation accelerated in 2015, in line with strong headline growth and favourable financing conditions. Total revenue over-performed by EUR3.5bn (1.7% of GDP) on the back of higher corporate tax income. This allowed the government to increase expenditure by an additional EUR1.2bn in 2015 while still exceeding fiscal targets. The budget deficit fell to an estimated 1.5% of GDP, well below the original target of 2.7%, with Ireland expected to exit the Excessive Deficit Procedure this spring, as scheduled.

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