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Rating action

Scope Ratings GmbH (Scope) has today affirmed the Republic of Ireland’s long-term issuer and senior unsecured debt ratings at AA in both local and foreign currency, with Stable Outlook. The short-term issuer rating has been affirmed at S-1+ in both local and foreign currency, with Stable Outlook.

Ireland’s AA rating is anchored by: i) a wealthy and internationally competitive economy supporting economic resilience; ii) a track record of fiscal discipline and expected fiscal surpluses over the medium term, alongside a long maturity of public debt, significant official sector ownership of government debt and a favourable refinancing profile; iii) a well-established institutional framework and the ability to attract significant foreign direct investments; and iv) European Union and euro-area membership within a large common market, a strong reserve currency and access to regional lenders of last resort for financial institutions via the European Central Bank and the sovereign via the European Stability Mechanism.

Conversely, Ireland’s AA rating is challenged by: i) strong dependence on multinational enterprises (MNEs) whose highly concentrated corporate tax contributions account for a significant portion of government revenue; ii) the economy’s vulnerability to sudden international shocks, including from key trade partners; iii) supply-side constraints limiting capital investment spending to tackle key infrastructure needs and build up public services; and iv) high private and external debt levels.

Scope’s baseline is that international tensions will be manageable for the Irish economy. This entails i) moderate tariffs on good exports to the United States (AA/Negative); ii) the continuation of MNEs’ industrial operations in Ireland as a strategic location within Europe; and iii) the preservation of Ireland’s attractive tax regime even if the OECD two-pillar tax reform, particularly around profit allocation rules, were finally adopted.

However, deeper geopolitical fragmentation between the United States and the European Union would undermine some of Ireland’s credit strengths. An escalation of trade tensions, including retaliation from the European Union (AAA/Stable) on information and communication technology (ICT), and strategic shifts in MNEs’ corporate structures (such as a re-organisation of supply chains, relocation of investment including intangible assets, and a change in profit domiciliation) would have significant growth and fiscal implications for Ireland. Although not Scope’s baseline, the materialisation of such downside risks would be credit negative.

Key rating drivers

Strong public finances driven by high corporate tax revenues, a record of budget surpluses and fiscal discipline, as well as a favourable debt profile. Ireland benefits from exceptionally strong corporate income tax, which stood at EUR 39.1bn (36% of the Exchequer revenue) in 2024, after EUR 29.3bn in 2023. Corporation tax receipts were bolstered by a one-off payment of EUR 14.0bn (4.5% of GNI*) following a ruling from the Court of Justice of the European Union (CJEU), of which EUR 10.9bn were recorded in 2024 and EUR 1.7bn in Q1 2025. Corporate income tax receipts are projected to remain sizable at EUR 29.3bn in 2025 (28% of revenue) and EUR 28.1bn in 2026 (27%).¹ The uncertainty surrounding the OECD two-pillar tax reform is expected to perpetuate Ireland’s attractive tax regime for MNEs, even if the Irish government remains committed to raise the corporate tax rate from 12.5% to 15.0%.

In a baseline scenario, Scope expects the general government budget balance to remain in surplus over the coming years and the debt-to-GNI* ratio to remain on a downward trajectory. The headline budget surplus is projected at 2.6% of GNI* in 2025 (1.6% of GDP), down from 7.2% in 2024 (4.4%), and around 2.3% of GNI* on average (1.4%) between 2026-30. Scope projects the debt-to-GNI* ratio to decline from 68% in 2024 to 63% in 2025 and less than 50% by 2030 (with debt-to-GDP falling from around 40% to 30% over the period).

Further strengthening Ireland’s fiscal position, the government has continued to ringfence a portion of windfall corporate tax receipts towards the two savings funds established in 2024. More than EUR 8bn was transferred to the Future Ireland Fund (FIF) in 2024 and 0.8% of GDP will be transferred to the FIF every year until 2040. The Irish government estimates that the Fund could grow to around EUR 100bn, allowing future governments to draw down the Fund’s investment returns from 2041 onwards to contribute to addressing spending pressures related to an ageing population as well as the digital and climate transitions. In addition, EUR 2bn were transferred to the Infrastructure, Climate and Nature Fund (ICNF) and around EUR 2bn per year will be transferred to the ICNF from 2025 to 2030. The Fund is expected to grow to total assets of around EUR 14bn and is intended to provide a buffer to support investments during economic downturns and support climate and nature-related objectives, while allowing only limited early drawdowns.

Ireland’s favourable refinancing profile, including its long maturity of public debt, further support the fiscal outlook. Average 10-year government bond yields stood at 2.9% in H1 2025 but the impact on the government’s overall debt-service costs is expected to be manageable thanks to budget surpluses and moderate public gross financing needs. The redemption profile is modest with less than 40% of outstanding debt set to mature in the next five years reflecting Ireland’s very long weighted average debt maturity of more than 10 years. Funding flexibility is further supported by the National Treasury Management Agency’s (NTMA) significant cash balance of EUR 30bn (around 5% of GDP) as of March 2025 that is projected to moderate to EUR 26bn in December 2025. To support market liquidity, the NTMA announced a funding range for 2025 between EUR 6bn-10bn. As a result of the favourable debt profile, Scope estimates that the interest expenditure as a share of general government revenue will modestly increase from around 1.6% in 2025 to 2.4% in 2030.

Wealthy and internationally competitive economy supporting economic resilience. Although international uncertainty weighs on capital-intensive projects, trade tensions appear manageable for the Irish economy. Tariffs imposed by the United States on good exports are not expected to materially undermine MNEs’ operations in Ireland as a strategic location for business activities within Europe. Relocating production away from Ireland would entail significant costs and regulatory hurdles. The large stock of foreign direct investments (FDIs) located in Ireland (EUR 1 trillion) is thus projected to remain, particularly in high value-added sectors such as pharmaceuticals and information and communication technology (ICT) given the difficulty to substitute the production (i.e., inelastic demand) and the country’s favourable business environment.

Domestic economic activity as measured by modified final domestic demand (MDD), which excludes investment in aircraft related to leasing, R&D service imports and trade in intellectual property, is projected at 2.0% in 2025 and 2.4% in 2026, against 1.8% in 2024. Ireland’s MDD growth is set to remain robust thanks to rising real disposable income driven by a low unemployment rate of 4.3% as of Q1 2025, inflation remaining below its target at 1.6% as of June 2025, and income tax reductions and one-off transfers included in the 2025 budget. Excess savings in households’ deposit accounts remain sizable, around EUR 35bn, which supports the shock-absorption capacity.

Furthermore, Ireland’s growth potential (estimated above 2%) will be supported by the rollout of the updated National Development Plan². It includes EUR 102.4bn in capital investment between 2026 and 2030, with an overall investment of EUR 275.4bn by 2035. The plan aims to tackle key infrastructure needs related to housing, water and energy, and transport. The financing strategy includes EUR 14.2bn related to the CJEU ruling, EUR 3.5bn derived from the government’s sale of AIB shares, and EUR 3.15bn drawn from the ICNF. The prioritisation of investment projects and a favorable political outlook with the next election scheduled for end-2029 could support the execution phase. Even so, supply-side bottlenecks (including a limited workforce) are key policy challenges as the economy operates at capacity.³

Rating challenges: high concentration of corporate tax revenue; elevated vulnerability to external and financial shocks

The Irish economy displays a narrow tax base (21% of GDP) that reflects highly progressive income tax, reduced VAT rates, and moderate property tax. Government revenues are highly dependent on a small number of large MNEs, which account for a significant portion of economic growth, employment, and tax revenue despite limited domestic activities. MNEs have been the main drivers of productivity growth in recent years and government finances have become increasingly reliant on corporate tax revenue, which is expected to account for about 30% of revenue on average over 2024-26, compared with about 11% a decade ago. Corporate income tax is also highly concentrated with just three firms accounting for about 40% of receipts.⁴ This concentration makes Ireland particularly vulnerable to adverse developments in the performance of MNEs and/or in changes in their corporate and investment strategies, especially in the context of the global corporate tax reform discussions focused on base erosion and profit shifting. If excess corporate tax revenues are excluded – reflecting either a regulatory decision or a relocation outside Ireland of profits made by MNEs within Europe – the general government balance would be in deficit of around 1% to 2% of GNI* in the coming years and the debt-to-GNI* would shift to an upward trajectory, leading to significantly higher public financing needs.⁵ The government has repeatedly breached its self-imposed spending rule that aims to limit net spending increases to 5% per year.

Furthermore, as a small open economy, Ireland is particularly vulnerable to adverse shifts in the external environment that are likely to impact economic activity and revenue generation. This is shown in the volatility of Ireland’s GDP and current account balance, which reflects distortions from large-scale MNE operations linked to manufacturing and intellectual property imports. Ireland is vulnerable to a relocation of FDIs from MNEs, primarily on intangible assets. The net international investment position has improved but it remains very weak at a negative 66% of GDP as of Q1 2025, largely reflecting the positions of the non-financial sector as well as intracompany loans operated by MNEs. External debt has fallen from around 1,100% of GDP in 2010 but remains significantly higher than that of peers at around 530% of GDP in Q1 2025. Given Ireland’s role as a key European hub for investment funds and other financial institutions, aggregate financial liabilities held by financial corporations are exceptionally high at around 1,300% of GDP, with investment funds accounting for around half of liabilities. This reflects an elevated risk of global financial imbalances crystalising in Ireland in the event of a global crisis.⁶

Rating-change drivers

The Stable Outlook represents the opinion that risks for the ratings are balanced over the next 12 to 18 months.

Upside scenarios for the long-term ratings and Outlooks are if (individually or collectively):

1. Vulnerabilities to public finances were to reduce significantly, including a more diversified tax revenue base;
    
2. Vulnerabilities related to external and financial-system risks reduced substantially.

Downside scenarios for the ratings and Outlooks are if (individually or collectively):

1. The fiscal outlook weakened and/or the declining debt-to-GNI* trajectory reversed, for example due to an escalation of trade tensions and/or strategic shifts in multinationals’ corporate structures;
    
2. The medium-term economic growth outlook weakened substantially;
    
3. Private-sector and financial-system risks were to increase meaningfully, impacting longer-term macro-economic and financial stability.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s SQM, which assesses core sovereign credit fundamentals, signals a first indicative credit rating of ‘aaa’ for Ireland, which was approved by the rating committee. Under Scope’s methodology, the indicative rating receives 1) a one notch positive adjustment from the methodological reserve-currency adjustment; and 2) no negative adjustment from the methodological political-risk quantitative adjustment. On this basis, a final SQM quantitative rating of ‘aaa’ is reviewed by the Qualitative Scorecard (QS) and can be changed by up to three notches depending on the size of Ireland’s qualitative credit strengths or weaknesses compared against a peer group of sovereign states.

Scope has identified QS relative credit strengths for Ireland: i) growth potential and outlook; and ii) long-term debt trajectory. Conversely, the following credit weaknesses have been identified in the QS: i) macro-economic stability & sustainability; ii) current account resilience; iii) external debt structure; iv) resilience to short-term external shocks; v) financial imbalances; and vi) social factors. On aggregate, the QS generates a one-notch negative adjustment for Ireland’s credit ratings.

An additional one notch negative adjustment is applied to capture distortions in Irish economic data that tend to overstate the performance of underlying fundamentals and credit metrics of Ireland. Together these adjustments result in a final long-term foreign- and local-currency rating of AA for Ireland.

A rating committee has discussed and confirmed these results.

Factoring of environment, social and governance (ESG)

Scope explicitly factors in ESG sustainability issues during the ratings process through the sovereign rating methodology’s stand-alone ESG sovereign risk pillar, having a significant 25% weighting under the quantitative model (SQM) and 20% weighting under the analyst-driven Qualitative Scorecard.

For environmental factors, Ireland receives a high SQM score for its low carbon emissions per GDP and a low score for its greenhouse gas emissions per capita. Compared with peers, Ireland achieves above-average scores on its ecological footprint of consumption compared with the available biocapacity within its borders and a higher score for its slightly lower risk to natural disasters. The government has adopted ambitious climate goals in line with peer countries to achieve carbon neutrality by 2050 and significant progress was made to reduce GHG emissions and increase the renewable share of the electricity mix. However, the energy mix remains largely fossil fuel-based and the country has one of the highest levels of greenhouse gas emissions per capita in the EU due its reliance on natural gas (almost one third of total energy supply). Scope assesses Ireland’s QS adjustment for environmental factors as ‘neutral’.

For social factors captured under the SQM, Ireland receives the highest score among peers. This reflects Ireland’s low old-age dependency ratio, which counterbalances the relatively high degree of income inequality and lower labour force participation. While Ireland is considered a top-tier country in the Global Social Progress Index, it still ranks behind its peers, with relatively weaker scores for housing affordability, equal access to quality healthcare, and the share of population with at least some secondary education. Scope assesses Ireland’s QS adjustment for social factors as ‘weak’.

Under governance-related factors captured in the SQM, Ireland benefits from the high quality of its institutions and a stable political environment. Under the governance-related factors captured in Scope’s SQM, Ireland receives the highest score similar to other highly rated peers on a composite index of five World Bank Worldwide Governance Indicators. Following the dissolution of Dáil Éireann (parliament), a snap general election was called in November 2024, which led to a government coalition between Fianna Fáil and Fine Gael. As part of the rotation agreement, Micheál Martin (Fianna Fáil) was elected new Taoiseach (prime minister) until November 2027, when Simon Harris (Fine Gael) will take over ahead of next general election scheduled for end-2029.

Rating Committee
The main points discussed by the rating committee were: i) domestic economic risk; ii) public finance risk; iii) external economic risk; iv) financial stability risk; v) ESG-related risk; and vi) rating peers.

Rating driver references
1. Annual Progress Report, May 2025, Department of Finance 
2. National Development Plan Review 2025 
3.  Fiscal Assessment Report, Fiscal Advisory Council, June 2025 
4. Investor Presentation, NTMA, May 2025 
5. Article IV Consultation, IMF, June 2025 
6. Financial Stability Review 2025:I, Central Bank of Ireland 

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and/or Outlooks is (Sovereign Quantitative Model Version 4.0), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Thomas Gillet, Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 28 July 2017. The Credit Ratings/Outlooks were last updated on 23 August 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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