S&P upgrades outlook on Ireland to 'stable'

Standard & Poor's said the promissory note deal make a full bond market return more likely

Ratings agency Standard & Poor’s has upgraded its outlook on Ireland from ‘negative’ to ‘stable’, following last week’s agreement to replace the Anglo promissory note with long-term bonds.

The agency has maintained a BBB+/A-2 credit rating for Ireland, but said the recent debt deal “should reduce the Government’s debt-servicing costs and lower refinancing risk”.

S&P said it believed the deal would increase the likelihood of Ireland’s full return to the private bond markets by the end of 2013.

However the agency said Ireland still had a substantial deficit, heavy public and private debt burdens and a weakened financial system.

“These factors collectively reduce Ireland’s growth prospects as well as its capacity to respond to material economic and financial shocks,” a statement from the agency said.

It said it could revise the outlook to 'negative' if the Government failed to comply with its EU/IMF bailout programme.

The agency could consider raising its rating on Ireland, however, if the Government continues on its fiscal strategy and “can sell its sizable equity position in the domestic banking system to non-resident investors”.

Last week ratings agency Fitch described the promissory note deal as a “positive surprise” but maintained its BBB+ rating with a stable outlook.

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