Moody has put Ireland’s Aa2 credit rating for review with a possible downgrade on the cards. Moody’s said the review is a result of the mounting recapitalization costs of the country's banking system. There are also concerns about the nation's political environment and growing borrowing costs, among other things.
The review will take up to three months and the ratings would “most likely” be cut by one notch, with the country getting a new rating of A.
Dietmar Hornung, who is Moody's lead sovereign analyst for Ireland, said the review process will examine the government’s revised four-year fiscal plan. The plan is expected to be presented in early November and espouses cutting down the nation's budget deficit to less than 3% of gross domestic product by 2014. The deficit limit has been set by the European Union.
Prospects of that happening are dim as the country's deficit forecast is up to 12% of GDP this year; it is 32% of GDP if the bank recapitalization measures are taken into account.
Irish economy has struggled ever since the country’s central bank revealed that the bailout package for the Anglo Irish Bank could reach as high as 34.3 billion euros, or $47 billion.
Moody's downgrade would balance Ireland ratings in line with Fitch and Standard & Poor’s, who have already taken into account the country's economic woes. The agency will also review the Aa2 rating of Ireland’s National Asset Management Agency given its huge debt; the new rating is expected to be a significant downgrade.
