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Paris. Moody’s Investors Service on Friday slashed its credit rating on Ireland by five notches from Aa2 to Baa1 because of increasing uncertainties over the debt-stricken country’s economy and public finances.

Moody’s said the Baa1 rating outlook was negative.

Ireland, once known as the Celtic Tiger for its stellar growth rates, recently had to seek an 85 billion euro ($113 billion) rescue package from the European Union and International Monetary Fund as massive debt and deficit problems left the country on the verge of collapse.

The Irish Parliament approved the hugely controversial package earlier this week.

Moody’s said its downgrade reflected the problems in the Irish banking system, the “increased uncertainty regarding the country’s economic outlook; and the decline in the Irish government’s financial strength.”

The negative outlook in the ratings “is based on the risk that the Irish government’s financial strength could decline further if economic growth were to be weaker than currently projected or the costs of stabilizing the banking system turn out to be higher than currently forecast.”

On the positive side, Moody’s noted the Irish economy’s competitiveness and its business-friendly tax environment, while the labor market was flexible, as reflected in “the considerable wage adjustment” seen during the crisis.

On Thursday, figures showed that Ireland returned to growth in the third quarter thanks to robust exports, with the economy expanding 0.5 percent after shrinking 1 percent in the second.

Finance Minister Brian Lenihan said the data showed that “the economy is growing, primarily due to the very strong performance of the export sector.”

The “figures show that the economy has stabilized and is now on an export-led growth path,” he said.

Ireland, hit by bank bailouts, a property market meltdown and recession-ravaged tax revenues, has unveiled draconian measures to slash its huge public deficit and save 15 billion euros by 2014.

Its international bailout, just seven months after a similar rescue of Greece, comes amid tensions over the euro-zone debt crisis and as EU leaders met for a second day on Friday in Brussels to discuss ways to tame the storm.

Moody’s shocked financial markets on Wednesday when it placed Spain on review for a possible downgrade, blaming the nation’s stretched finances and banking problems and stirring fears the debt crisis could spread even further and threaten the whole euro-zone project.

 

Agence France-Presse