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S&P Happy With Irish Government's Work

by Robert Lee,, London

09 August 2011

The Irish government's commitment and capacity to stabilise public finances have convinced the ratings agency Standard and Poor's (S&P) to maintain both the country's short and long term credit ratings.

The agency held Ireland's long term rating at BBA+ and its short term rating at A-2 on August 5. It said that Ireland's creditworthiness has been sustained by a strong political consensus in favour of fiscal consolidation, which should see the deficit fall to 3% of GDP this year.

In addition, S&P expects to see export-led growth over the medium term, supported by competitiveness gains and one of the most open economies in the eurozone. In all, the government's strategy is described as capable of putting the public finances on a more sustainable path.

S&P also believes that the Irish government has sufficient support in its external bailout arrangements to cover its financing requirements through to the second half of 2013. The government is not expected to face any further material costs for the banking system, above and beyond the capital already poured in.

Two future scenarios have been laid out by S&P. On the one hand, were the government's fiscal stategy not achieved, downward pressure on the ratings could build. On the other hand, were the economy to return more quickly to average GDP per capita growth rates above S&P's current expectation of 1.6% for 2011-15, the agency would consider raising Ireland's ratings.

S&P's decision is in sharp contrast to the debt rating offered to Ireland by Moody's last month, when its rating was dropped to Ba1, or junk.

TAGS: tax | economics | business | Ireland | fiscal policy | banking | gross domestic product (GDP) | budget | tax reform

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