Ratings agency Fitch has revised upwards its outlook for Ireland to stable from negative.
The agency has affirmed its rating for the country at BBB+, three notches above junk status.
In a statement, Fitch said the revision of outlook reflects Ireland's continued progress with its fiscal consolidation, external adjustment and economic recovery.
It also cites the sovereign's improved financing options.
However, the agency said Ireland retains downside risks from its high public and private debt levels and the economy's sensitivity to fluctuations in external demand.
Fitch expects the 2012 deficit to be close to the target of 8.6% of GDP, implying a primary deficit of 4.5%, despite some expenditure overruns.
It points out that significant further adjustment is needed to bring the deficit below 3% by 2015 as required under the EU-IMF programme.
Fitch forecasts GDP growth at 0% in 2012 - down from 1.4% in 2011.
This is better than its forecast for the the eurozone average, which Fitch forecasts at -0.5%, and significantly better than other so-called peripheral eurozone countries.
Fitch also points to Ireland's progress in returning to market financing, citing in particular its issuance of five and eight-year bonds in August and September at lower yields.
Moody's is the only one of the three main rating agencies to have downgraded Ireland to non-investment grade.
The National Treasury Management Agency welcomed the Fitch announcement as "encouraging."