Fitch Ratings placed the Republic of Ireland's Long-term foreign currency Issuer Default Rating (IDR) at 'AAA' on Rating Watch Negative.
The rating action reflects sharp declines in tax receipts in January and February, negatively affecting government revenues.
This will intensify the policy challenges facing the government as it seeks to tighten fiscal policy further than anticipated in the midst of a steep recession and raises the risk of fiscal slippage. In the first two months of this year revenues were again below the already low expectations built into the government's January forecasts.
In response to these forecasts Government took action designed to produce savings this year of EUR2 bln and thereby reduce the government's deficit to 9.5% of GDP. The latest information suggests, in the absence of any further Government action, the 2009 deficit could be increased by EUR4 bln, equivalent to over 2% of GDP, implying a revised deficit of 11.5-12%.
The Prime Minister has said that new tougher measures on both taxation and public expenditure to rectify the further slippage in the fiscal position will be announced and a supplementary Budget is scheduled for the first week of April.
Fitch will re-assess the medium term prospects for Ireland's public finances in light of the deterioration in revenue prospects, forthcoming policy announcements and worsening economic conditions, which could raise the potential call on government funds to support the Irish banks.