Downturn sees government bonds take ratings hit

The plight of the Irish economy has resulted in Moody's ratings agency downgrading the country's government bonds by one notch.

It cited a deteriorating economic outlook, a heavy debt burden and liabilities in the banking system.

Moody's Investors Service said it dropped its rating on the government bonds from Aa1 to Aa2.

Moody's noted that government tax collections have fallen as gross domestic product has declined since 2008. The general government debt-to-GDP ratio has risen from 25 per cent before the crisis to 64 per cent and is still rising, Moody's says.

The rating agency said it was also concerned about Ireland's weaker growth prospects because of the severe downturn in the financial services and property sectors, and a contraction in private sector credit.

The third factor worrying Moody's was "the crystallisation of contingent liabilities from the banking system, as represented by a series of recapitalisation measures" and the need for Ireland to create a National Asset Management Agency to take away bad loans from banks.

Standard and Poor's downgraded Irish bonds from AA+ to AA in March last year, while Fitch Ratings cut Ireland from AAA to AA- in two steps last year, according to Barclays Capital.

- AP