Moody’s leaves Ireland’s credit-rating unchanged

Ratings agency Moody’s has reaffirmed Ireland’s credit-rating, but has highlighted a range of possible risks to the health of the Irish economy.

The organisation said it was keeping the Government of Ireland’s long-term issuer rating at A2.

The ratings on the country’s senior unsecured bond, progamme and commercial paper ratings have also been left unchanged.

Moody’s Investor Service also said the outlook remains stable.

The decision will come as a relief to those managing the country’s finances as it appears to face into a protracted period of uncertainty over the formation of a new Government following last weekend’s general election.

The agency said the key motivation for leaving the ratings as they were included the high wealth levels and rapid growth of the economy.

However, it said this is balanced against growth, volatility and vulnerability to external risks, including Brexit and shifts in global taxation rules.

“Although Moody’s cautions that GDP figures are inflated by the large presence of multinational corporations in the country, underlying domestic fundamentals remain strong, too,” it said.

“The Irish economy is highly competitive, which has enabled the country to attract sizeable foreign investment over the past five years.”

However, Moody’s also pointed to the elevated volatility that accompanies the presence of multinationals.

It also highlighted the susceptibility to external risks, including Brexit.

“Although not likely, a no-trade deal Brexit at the end of the transition period this year is the largest single risk to Ireland’s economic outlook, given strong trade and supply chain links,” it said.

“Supply chains are deeply integrated and would therefore face heavy disruption under a no-deal scenario at the end of the transition period which is scheduled for the end of this year.”

Changes to the global corporation tax regime also pose a potential danger, the report claimed.

“Moody’s does not expect that shifts in global taxation rules would materially weaken the existing stock of foreign direct investment in Ireland,” it said.

“Many multinationals have long-established businesses in Ireland and will likely continue to use the country as their base for exports to European and other markets. However, flows of new foreign direct investments could materially decline.”

It also took into account the country’s return to a fiscal surplus, though it pointed out that debt levels are still high relative to peers and there are risks around the concentration of revenue from particular sources.

“Despite the rapid increase in public investment, Moody’s expects that the budget balance will remain in small surplus over the coming years, as sustained growth in revenue and contained current spending allow for a robust increase in capital expenditure,” it claimed.

“Small budget surpluses in the coming years would allow for a continued decline in the debt burden. While the composition of the future government is uncertain, our base case is that the next government will not embark on a major shift in fiscal policy that would reverse declines in the debt trajectory.”

However, it pointed to concerns about the possible over reliance on corporation tax as a revenue source.

“Revenue is more volatile than in other countries due to the large presence of multinational corporations, and the government has done little to address the growing reliance on corporate income tax,” it claimed.

Moody’s also says that while the risk to the Irish banking sector has largely receded, it continues to “drive susceptibility to event risk together with political risk and external vulnerability risk”.

It said it has also kept the National Asset Management Agency’s A2 backed issuer rating, its short-term issuer and commercial paper ratings unchanged as those ratings are aligned with the sovereign.

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