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Ireland Scores an Upgrade Even in Face of Brexit Risks

Benjamin Purvis

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Ireland had its credit score boosted on Friday by S&P Global Ratings, which said the nation’s economy should remain competitive and attractive to foreign investors even if its nearest neighbor, the U.K., tumbles out of the European Union without an exit agreement.

“The government has amassed substantial fiscal buffers to offset the risk of an external shock, such as a sudden falloff in corporate tax receipts or a no-deal Brexit,” S&P said in a statement. “Irish growth and employment outcomes continue to rank among the strongest in the developed world.”

The credit assessor lifted Ireland’s rating to AA-, its fourth-highest score, and said the outlook was stable. While underlying domestic economic growth in Ireland has slowed, it is still “significantly” above the average for the euro area and the government remains committed to fiscal prudence, S&P said.

The nation’s economy grew at a pace of 5.8% year-over-year in the second quarter of 2019 and data for the third quarter are due in December. Ireland’s current situation represents a significant turnaround from the depths of the euro-area debt crisis, which saw S&P slash the country’s credit score in 2011 to as low as BBB+, or three notches above junk.

“Ireland has posted strong fiscal outcomes and vigorous economic growth, which together have contributed to a steep decline of Irish public and private debt as a percentage of domestic output,” S&P said. “Replacing debt as a source of growth, foreign direct and portfolio investment from abroad have accelerated from already high levels over the past several years.”

While S&P paints an optimistic picture, it underscores that Ireland does face risks if Brexit “substantially damages” the growth rate. The result of upcoming elections in the U.K. and their impact on the Brexit process will be a key focus for those assessing Ireland’s prospects.

The state’s fiscal watchdog also said this week that Ireland is too reliant on corporation tax from a small number of international operations to fund spending. Companies pay more than 10 billion euros ($11 billion) worth of tax in Ireland, which is almost a fifth of all tax collected, the nation’s Fiscal Advisory Council said in a report on Thursday. That leaves the government vulnerable to any sudden drop in corporation tax, it said.

(Updates with earlier comments from fiscal watchdog on reliance on tax revenue)

To contact the reporter on this story: Benjamin Purvis in New York at bpurvis@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net, Steve Geimann

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