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Fitch: Yes vote removes uncertainty, but return to markets still 'unclear'

The ratings agency says approving the Fiscal Compact removes a risk, but doesn’t guarantee a return to the markets.


ONE OF THE WORLD’S largest ratings agencies has said Ireland’s decision to ratify the Fiscal Compact is a welcome one which removes uncertainty about Ireland’s future funding – but that the country’s fiscal future remains “unclear”.

Fitch has said the Yes vote in last Thursday’s referendum was “positive for the sovereign”, as it removed the concern about whether Ireland could gain access to the European Stability Mechanism if it needed it.

It added, though, that the Yes vote “does not put upward pressure” on its BBB+ rating, only a couple of notches above ‘junk’ status – given that the country was still set to run significant deficits in the coming years.

“Export-orientated Ireland is exposed to an economic downturn in its major European trading partners, though its improving competitiveness mitigates the impact of such adverse external shocks,” it said.

Noting the yield of Irish government bonds, which this morning stand above 7.4 per cent for 9-year loans, Fitch declares that “the timing and cost of Ireland’s return to the debt markets remain unclear”.

“These concerns are reflected in our Negative Outlook on the rating, which we affirmed on 27 January,” it said.

Fitch also suggested that the government’s deficit this year will stand at 8.6 per cent of GDP, compared to the 8.3 per cent currently projected by both the Department of Finance and the EU.

That 8.6 per cent, however, is within the boundaries laid down under Ireland’s bailout agreement, which allowed a deficit of up to 8.6 per cent of GDP.

On a positive note, the agency remarks that Ireland remains on track to exceed many of the EU-IMF targets, and said the Yes vote was an expression of “broader public acceptance” of a long-term fiscal consolidation plan.

After the global financial crisis, why are rating agencies still trusted?

In numbers: Ireland’s referendum on the Fiscal Compact

About the author:

Gavan Reilly

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