Ireland’s Credit Rating Downgraded by Moody’s
July 19th, 2010Via: Irish Times:
Credit agency Moody’s has downgraded Ireland’s government bond ratings to Aa2, blaming banking liabilities, weak growth prospects and a substantial increase in the debt to GDP ratio.
However, Moody’s lead analyst for Ireland Dietmar Hornung said it was a “gradual, significant deterioration, but not a sudden, dramatic shift”, and the agency believed Ireland has “turned the corner”.
The general government debt-to-GDP ratio was at 64 per cent at the end of last year, up from 25 per cent before the financial crisis took hold, and is continuing to rise.
“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,” said Mr Hornung.
The support provided to the banking system, which includes the transfer of billions of euro worth of loans from banks to the National Asset Management Agency, was also cited as a key factor in the rating downgrade. Recapitalisation measures already announced may reach €25 billion, the agency said, but Anglo Irish Bank may require further support.
“While we do not expect the government – not even in a moderately stressed scenario — to incur permanent losses in excess of 25 per cent of the country’s 2009 GDP as a result of these obligations, we believe that the uncertainty surrounding final losses would exert additional pressure on the government’s financial strength,” the agency said in a statement.
The move comes just over a year after Moody’s last downgraded the country’s rating. On July 2nd 2009, the agency gave the bonds a Aa1 rating, with a negative outlook.
However, the outlook was today changed to stable, with Moody’s now viewing the upside and downside risks as evenly balanced at the current rating level.
