Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations that may act as a lender of last resort.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic 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 rating’s 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/Stable; short-term local- and foreign-currency issuer ratings: S-1+/Stable) on 10 February 2025.

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 ratings history can be found on www.scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, please see here.

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 financial institutions via the European Central Bank and the sovereign via the European Stability Mechanism.

Despite these credit strengths, challenges to Ireland’s AA ratings remain, including: i) still high public and private debt levels when assessed against underlying economic activity; ii) strong dependence on multinational corporations whose highly concentrated 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), is projected to increase from 2.6% in 2023 to 3.1% in 2024 and 2025. This is supported by a low unemployment rate of 4.5% in December 2024, inflation running temporarily below its target due to lower energy prices, as well as rising real wages and high excess savings in households’ deposit accounts of around EUR 30bn. Scope expects medium term economic growth will continue to be underpinned by the favourable business environment and ability to attract sizeable international investment flows, although uncertainties have increased given unpredictable US economic and trade policies.

Scope expects the headline budget surplus to remain high at 2.6% of GNI* in 2025 (1.5% of GDP), down from 7.1% of GNI* in 2024 (4.3% of GDP), and below 2% of GNI* on average between 2026-29 (1% of GDP). Corporate income tax receipts have increased sharply since the pandemic, more than doubling from EUR 10.9bn (18% of government revenues) in 2019 to EUR 23.8bn (27% of government revenues) in 2023. Last year’s corporate tax revenue was exceptionally strong, with receipts increasing to EUR 28.1bn, excluding EUR 11bn from the ruling of the Court of Justice of the European Union.

Balancing increased spending pressures with an economy operating at capacity is a key policy challenge. The Irish Fiscal Advisory Council noted that the 2025 Budget entails a large package of EUR 9.1bn breaching the 5% net spending limit at the time of very strong economic momentum. Similarly, the Central Bank of Ireland highlighted an expansionary fiscal stance while the economy operates above its potential.

Further strengthening Ireland’s fiscal position, the government has established two new long-term savings funds in 2024 to ringfence excess corporate tax revenues, estimated between EUR 14.2bn and EUR 15.4bn for the period 2025-2027. More than EUR 8bn was transferred to the Future Ireland Fund (FIF), and 0.8% of GDP will be transferred to the FIF every year until 2035. The government estimates that the FIF could grow to around EUR 100bn. In addition, EUR 2bn was transferred to the Infrastructure, Climate and Nature Fund (ICNF), and EUR 2bn per year will be transferred to the ICNF by 2030. The ICNF will have total assets of around EUR 14bn.

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced.

Upside scenarios for the ratings and Outlooks are (individually or collectively):

1. Vulnerabilities to public finances were to reduce significantly, including a more diversified tax revenue base;
    
2. Vulnerabilities related to external and financial-system risks reduced substantially.

Downside scenarios for the ratings and Outlooks are (individually or collectively):

1. The fiscal outlook weakened and/or the declining debt-to-GNI* trajectory reversed, for example due to a severe macroeconomic shock, declining international competitiveness or weakening fiscal discipline;
    
2. The medium-term economic growth outlook weakened substantially;
    
3. Private-sector and financial-system risks were to increase meaningfully, impacting longer-term macro-economic and financial stability.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 January 2025) 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 Thomas Gillet, Director

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