DBRS Morningstar has upgraded its rating on the State’s creditworthiness by one level to AA (low) in view of the economy’s “enhanced macroeconomic resiliency” during the Covid-19 crisis. The new rating is three rungs below the agency’s top AAA position.
“Ireland’s economic progress was on a path of high growth and diminishing vulnerabilities well before the onset of the pandemic,” the debt ratings agency said on Friday evening, noting that gross domestic product expanded by 7.6 per cent a year between 2017 and 2019.
DBRS says the “stable” trend it has on the new rating “reflects our view that Ireland is well positioned to balance adverse credit implications stemming from the pandemic, global tax reform and Brexit against the favourable growth outlook”.
The upgrade comes a day after the National Treasury Management Agency (NTMA) raised €3.5 billion selling 10-year bonds, completing more than a third of its minimum full-year funding target less than two weeks into 2022.
The bonds, sold through a syndicate of banks and securities firms, were priced to carry an interest rate, or coupon, of 0.387 per cent.
The agency aims to raise €10 billion-€14 billion in international bond markets in 2022, marking a decline of up to 46 per cent on the amount raised last year as the Government’s Covid-related spending eases.
The NTMA welcomed the DBRS upgrade, saying it “reflects market sentiment and what we are hearing from our engagement with international investors”.
Still, DBRS said the Covid-19 shock had exacerbated what had long been an economy operating at two speeds, as output by multinationals outshone domestic activity.
“Even with the recurring bouts of disruption to public health and social life over the last two years, Irish GDP expanded by 5.9 per cent in 2020, and the Government forecasts a 2021 expansion of 15.6 per cent,” the agency said.
“As ever, the strong GDP outcome needs to be viewed with caution. The growth rate reflects strong performance of external-facing sectors such as pharmaceuticals and [information and communications technology], and overstates the wealth generation of the Irish domestic economy.”
From a budget surplus in 2019, the Government deficit ballooned €18.4 billion in 2020 before narrowing in 2021 to about €9 billion.
“This result outperforms European peers, despite the Irish Government implementing one of the largest counter-cyclical spending programmes to support the economy,” DBRS said.
The total fiscal response to the Covid-19 crisis so far has amounted to €48.4 billion, or 12.9 per cent of GDP, with more than 80 per cent directed at supporting employees, households and businesses as well as increased health and capital spending, it noted.