Scope has completed a monitoring review on the Republic of Ireland
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.
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. Scope considers all available and relevant information when undertaking the monitoring review.
Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or 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 (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AA-/Positive Outlook; short-term local- and foreign-currency issuer ratings: S-1+/Stable) on 12 September 2023.
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 connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.
Key rating factors
Ireland’s AA- ratings reflect several credit strengths, including its: i) wealthy, diversified and competitive economy and robust growth potential; ii) track record of fiscal discipline and expected fiscal surpluses in the medium term, alongside a long maturity of public debt, significant official sector ownership of government debt and a favourable refinancing profile; iii) well-established institutional framework and ability to attract significant foreign direct investment; and iv) European Union and euro-area membership within a large common market, a strong reserve currency and access to regional lenders of last resort for banks via the European Central Bank and the sovereign via the European Stability Mechanism.
Despite these credit strengths, challenges to Ireland’s ratings remain, including: i) still high public and private debt levels when assessed against underlying economic activity; ii) strong dependence on multinational corporations whose corporate tax contributions make up a significant, growing portion of government revenues; and iii) the economy’s vulnerability to sudden international shocks in the context of a small and very open economy.
Domestic economic activity, as measured by modified final domestic demand (MDD), displayed robust growth of 9.5% in 2022, reflecting resilient household consumption and strong business investment flows. It is expected to decelerate to around 3.5% in 2023 and about 2.5% in 2024, due to slowing private demand growth amid weak real income dynamics. Robust output growth and buoyant corporate income tax receipts drove a sharp improvement in the general government balance in 2022, which reached a 2.9% of modified gross national income (GNI*) surplus, up from a 2.9% of GNI* deficit in the previous year. Scope sees the fiscal surplus moderating somewhat to 2.5% of GNI* in 2023, before edging up to about 3.5% of GNI* in 2024. Comfortable budgetary surpluses and robust nominal growth should support a decline in the debt-to-GNI* ratio, which Scope expects will decline to 69.0% by 2024, from 82.3% last year.
The Positive Outlook reflects Scope’s view that risks to the ratings are skewed to the upside.
The ratings could be upgraded if, individually or collectively: i) debt sustainability strengthened significantly, underpinned by sustained improvements in Ireland’s fiscal fundamentals; and/or ii) the robust growth outlook was maintained over the forecast horizon.
Conversely, the ratings/Outlooks could be revised to Stable if: i) Ireland’s economic growth outlook proved substantially weaker than expected; ii) fiscal discipline weakened, leading to lower-than-expected budget balances and a weaker general government debt trajectory over the medium term; and/or iii) private sector and financial system risks increased significantly, impacting longer-term macroeconomic and financial stability.
For the updated rating report accompanying this review, click here.
The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 September 2022) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Eiko Sievert, Director
© 2023 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin.