Fitch raised Ireland's credit rating a notch to 'A' on Friday, taking the unusual step of upgrading a country's debt in the middle of an election campaign, a move that could potentially hand the government parties a boost.
Taoiseach Enda Kenny called elections for Feb. 26 on Wednesday, kicking off campaigning for what promises to be a tight contest dominated by a fractious debate over the country's brisk economic recovery.
Kenny is fighting the election on the strength of an economy forecast to be Europe's best performing for the third successive year in 2016 and Fitch cited growth last year of about 7.0% and improving debt dynamics as key drivers for the upgrade.
"The economy is exhibiting much more solid fundamentals that will help sustain momentum in the short term. Stronger balance sheets, a continued strengthening of the labor market and rising household consumption should underpin robust domestic demand growth in 2016," Fitch said in a statement.
While the upgrade will likely be viewed as good news for the government parties, Fitch's view that the medium-term growth potential of the economy is around 2.0 to 2.5% could call into question the 3.5 percent average annual rate Kenny's Fine Gael has based its spending plans on.
Kenny is well ahead in opinion polls but its support has slipped during a shaky start to the campaign meaning it and current junior coalition partner Labour remain some way short of securing a majority.
With no obvious alternative coalition in view, that could spell a period of political uncertainty for Ireland which Fitch said represented a potential source of downside risk.
"A protracted period of political uncertainty and/or the reliance on more radical political elements to sustain a coalition risks a weakening of reforms," said Fitch, whose outlook on Ireland's rating is 'stable'.
"That said, throughout the crisis, Ireland has shown strong fiscal commitment and credibility, supporting our forecast that the next government will remain broadly compliant with EU and national fiscal rules."
After the prospect of electoral deadlock turned some investors more cautious on Ireland's sovereign debt in recent weeks, Commerzbank said earlier on Friday than an upgrade would prompt "structurally higher demand from investors following rating-based investment guidelines."
Ahead of its only bond auction of the first quarter next week, Ireland's debt agency welcomed the move, saying Fitch's rationale underscored the healthy demand it has seen for Irish debt issuance. (Reuters)
Source: www.businessworld.ie
