Ireland’s credit rating downgraded amid debt fears
Rating agency, Standard & Poor’s (S&P) has downgraded Ireland’s credit rating from AAA to AA+ and has put the Irish Republic on a “negative” outlook, meaning that further downgrades are possible.
The downgrade could drive investors away since it will mean Irish businesses will have to pay more to borrow on the international markets.
The country has experienced a boom since the late 1990s, with multinationals arriving to take advantage of one of the lowest corporate tax rates in the euro zone.
However, the economy has entered its first recession since 1983 and has been hit by rising unemployment and the financial crisis. It was the first country in the euro zone country to fall into recession.
According to Ireland’s finance department, the ailing housing market and the global credit squeeze are primarily responsible for the recession.
In the meantime, S&P’s said it is concerned with the country’s banking system. Anglo Irish Bank is currently undergoing a fraud investigation, while Allied Irish Bank (AIB) and Bank of Ireland have been bailed out by the Government.
S&P’s said “The downgrade reflects our view that the deterioration of Ireland’s public finances will likely require a number of years of sustained effort to repair, on a scale greater than factored into the Government’s current plans.”
According to S&P’s, at the end of last year, Ireland’s debt stood at 280% of national output, compared with Britain’s – at 49% of output. However, Britain’s is expected to rise to 100% by 2015, according to a study by the Centre of Economic and Business Research.
In response to the downgrade, Ireland’s Government said it is committed to restoring order to its public finances.
In related news, Ireland’s unemployment rate increased to 9.2% in January compared with a rate of 8.3% in December. January’s rate of 9.2% is the highest level in over a decade, according to the Central Statistics Office.
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