Scope Ratings GmbH (“Scope”) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations, performs a monitoring review.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. As part of the monitoring review, Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted either by performing a peer comparison, benchmarking against the rating change drivers, and/or a review of the credit ratings` performance over time, as deemed appropriate by the Lead Analyst or the Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology(ies), including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Republic of Ireland (AA-/Stable; S-1+/Stable) on 1 November 2021. 

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action on the credit ratings of this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Ireland’s long-term ratings at AA-/Stable are underpinned by the following credit strengths: i) European Union and euro-area membership within a large common market, a strong reserve currency and access to regional lenders of last resort in the European Central Bank and the European Stability Mechanism; ii) strong national institutions and a wealthy, diversified and competitive economy that generates one of the highest per-capita incomes in Scope’s rated universe and robust growth potential; iii) a track record of fiscal discipline pre-crisis, alongside a long maturity of public debt, significant official-sector ownership of government debt as well as record-low borrowing rates; and iv) private-sector debt reduction and enhancements in financial-system resilience. Challenges relate to: i) still high public-debt levels when assessed against underlying economic activity – including deterioration during the pandemic; ii) the size and complexity of Ireland’s financial and corporate sectors, with significant leverage inside the financial system as well as the non-financial private sector and risks posed by future increase in non-performing loans; and iii) the economy’s vulnerability to sudden reversals when considered in the context of a small and very open economy due to shocks of either domestic or international origin.

The Stable Outlook reflects Scope’s assessment that risks to Ireland’s credit ratings are considered balanced over the forthcoming 12 to 18 months.

The AA-/Stable ratings/Outlooks could be upgraded if, individually or collectively: i) continued strong public finance and economic growth outlooks result in a meaningful decline in public debt levels; ii) private-sector debt continues to fall significantly, financial system risks are lowered, and banking system balance sheets improve; and/or iii) vulnerabilities to external risks relevant to the Irish economy are further materially reduced. The latter could, for example, relate to further significant reduction in elevated external debt and/or an improved assessment regarding the resilience of Ireland’s very open and interconnected economy to future global downturn.

Conversely, the ratings/Outlooks could be downgraded if: i) Ireland’s growth potential proves substantially weaker than anticipated, for example due to shifts in international corporate taxation policies; ii) fiscal discipline weakens significantly, resulting in an increasing general government debt ratio over the medium term; iii) private-sector and financial-system risks increase meaningfully, impacting longer-term macro-economic and financial stability; and/or iv) net external debt increases or an external shock significantly impairs government and domestic banks’ balance sheets.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 8 October 2021) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Eiko Sievert, Director

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