The credit rating agency Standard & Poor's has again lowered its rating for Ireland. A lower credit rating usually makes borrowing more expensive for a country.
Standard & Poor's said it had lowered Ireland's rating from AA+ to AA because it believed the costs to the Government of supporting the banking system would be 'significantly' higher than it expected in March. At that time, S&P lowered Ireland's top AAA rating to AA+.
The agency said that, as a result of measures taken to deal with the banking crisis, the country's debt burden would be much higher in the coming years.
The Government borrows money on the international bond market to meet its day-to-day spending needs. The interest rate it pays is dependent on how risky Ireland is perceived, and this is gauged by ratings agencies like S&P.
S&P analyst David Beers said the change in the rating came after Anglo Irish Bank's recent results and the emergence of more details on the plan to set up a National Asset Management Agency to clean up banks' balance sheets.
S&P said the outlook was negative, which means the agency believes there is a risk that the rating could be downgraded again. Mr Beers warned that the rating could be lowered again if bank assets deteriorated further or the Government fell short of budgetary targets. But the analyst also said the outlook could be changed if the banks stabilised more quickly than expected.
S&P said NAMA's ability to minimise the cost to the Government of its operations was uncertain, as there was a risk that the value of the assets it took on could fall.
The agency has also raised its estimate of the cost of recapitalising the banks to a range of €20 billion to €25 billion.
As a result, S&P now believes Ireland's net government debt could top 100% of gross domestic product, or economic output, over the medium term.
Another ratings agency, Fitch, cut Ireland's rating from AAA to A- in April, while Moody's warned in April that it could lower its AAA rating within three months.
The Department of Finance, in a statement, pointed out that Ireland had already successfully raised €13 billion this year on the international debt market. Meanwhile, NCB economist Brian Devine said the downgrade was no surprise and further downgraded were likely to bring ratings into line with where Irish bonds are trading on the markets.
