Fitch ratings agency has revised its outlook on Ireland to positive from stable and also affirmed the country's rating at AA-.
In a decision published on Friday night, Fitch said that Ireland will have a "favourable budget position" in the years to come, helped by rising corporate tax proceeds and "tight" expenditure control.
The rating agency noted that Ireland had a budget surplus of €8 billion last year, a sharp improvement from the €6.8 billion deficit in 2021.
It is forecasting a surplus of close to €10 billion this year.
Fitch noted that corporation tax revenues surged in 2021 and especially 2022, mainly due to the windfall tax received from the multinationals based here - hitting an estimated €6 billion in 2021 and €11 billion in 2022.
Meanwhile, public debt here declined to 44.7% of GDP in 2022 from 58.4% in 2020.
Fitch said that given the combination of substantial budget surpluses and resilient economic growth, it expects the firm declining trend of debt to continue over the next five years.
The debt to GDP ratio could decline below 40% next year, it added.
"The debt to GNI* ratio, the key debt indicator used by Irish institutions to adjust for the distortion in GDP was 83% in 2022 and it is also forecast to decline quickly. According to the Government's April Stability Programme it will fall to 70% in 2025, an almost 40pp decline between 2020 and 2025," it added.
The credit rating agency said that Ireland has one of the highest levels of GDP per capita in the world, even when adjusted for the large impact of multinational enterprises on national accounts data.
The country's credit profile also benefits from very favourable governance indicators and the reserve currency status of the euro, it added.
Fitch said the strong Irish economy is underpinned by a tight labour market and noted the record low unemployment rate of 3.8% for May.
"Given the labour market tightness, labour costs are forecast to contribute significantly to domestic price pressures, so core inflation will likely remain elevated until 2025. However, the risk of a standard wage-price spiral is limited in Ireland, given the labour market flexibility and the lack of centralised wage bargaining," it added.
It also said the country's public debt management is "prudent", and is underpinned by an average maturity over 10 years, large cash reserve of €27 billion and low refinancing needs.
On the banking sector, Fitch said the strong GDP growth should provide business growth opportunities for banks this year, while the impact of rising rates and inflation should result in a limited increase in non-performing loan rates and flat asset quality ratios.
It noted that the banks' balance sheets are benefiting from rising loan interest rates combined with "measured" increased rates on deposits.
"Headline operating profitability grew strongly in the first quarter of 2023 and asset quality continued to perform well. Irish banks' capital ratios are strong and funding and liquidity profiles are robust," it added.
But it also noted that housing supply is estimated to be below medium-term requirements and is currently constrained by labour and material shortages.
