Moody's raised its credit grade for Ireland on Friday by two steps, to Baa1 from Baa3, citing the impact faster growth will have on improving the country's debt profile.
While the country still has a high level of public debt and sizable fiscal deficits, Moody`s said faster growth will reduce its debt ratio faster than had been expected.
"Moody's expects Ireland's economy to grow considerably faster than the euro-area average over the near to medium term," the agency said.
"Domestic demand is now accelerating, led by a broad-based recovery in gross fixed investment but also by a revival in private consumption spending despite households` high debt overhang.
"Faster growth will support ongoing fiscal consolidation and put the debt on a firm downward trajectory," it added.
At the same time, the recovery of the Irish property market has allowed the government to reduce contingent liabilities by selling off assets taken over in the financial crisis.
Moody's said that puts Ireland in better shape going forward than other countries in the same ratings class such as Italy and Spain, meriting the upgrade.
Ireland exited a tough three-year bailout program of the International Monetary Fund and European Union in December, necessitated by a banking crash and the implosion of the housing market in 2010.
Under the program, the government was pressed to implement austerity measures to shore up its finances, and the economy still contracted by 0.3 percent last year.
But the program boosted confidence in its finances and allowed Dublin to return to commercial debt markets for funding in January.
Ireland still had a fiscal deficit of seven percent of gross domestic product last year and Moody's said it could be downgraded if it fails to cut that to below three percent of GDP by 2015.
The National Treasury Management Agency, which manages the government`s assets and liabilities, cheered the ratings hike in a statement.
"Moody's upgrade means that all of the three main rating agencies now have Ireland rated at BBB+ (or equivalent), which clearly ranks Ireland as an investment-grade credit and reflects the confidence in Ireland shared by investors generally," NTMA Chief Executive John Corrigan said.
First Published: Saturday, May 17, 2014, 10:25