Global rating agency Moody’s on Monday cut the sovereign debt rating of Ireland due to the country’s deteriorating financial situation, indicating that European debt crisis is far from over. The latest downgrade comes within a week of the agency slashing the rating of Portugal, which is grappling with severe debt crisis.
Moody’s Investors Service, which is part of Moody’s, has cut Irish government bond ratings to Aa2 from Aa1, signalling increased risk of default.
“Today’s downgrade is primarily driven by the Irish government’s gradual but significant loss of financial strength, as reflected by deteriorating debt affordability,” Moody’s lead analyst for Ireland Dietmar Hornung said in a statement.
The agency noted that Ireland’s weakened growth prospects are mainly on account of severe downturn in the financial services and real estate sectors and an ongoing contraction in private sector credit. It pointed out that “crystallisation of contingent liabilities from the banking system as a result of the government taking on debt to provide support to the country’s ailing banks”. However, Moody’s has raised the rating outlook of Irish government to stable from negative since it views the “upside and downside risks as being evenly balanced at the current rating level”.
Even as the near-term deterioration in the government’s debt metrics is expected to be severe, Moody’s asserted that government debt-to-GDP ratio would stabilise at 95-100 per cent over the next two to three years. Ireland, Portugal, Greece and Spain are among the European countries facing acute debt turmoil, a scenario that has raised concerns of even impacting the fragile global economic revival.
On July 13, the agency had slashed Portugal’s rating in the wake of the nation’s deteriorating financial position and weak economic growth prospects.
