INTERNATIONAL pressure on the Government to deliver its promised €4 billion-raising budget intensified yesterday after a credit rating agency said it would “closely monitor” Ireland’s measures to narrow its budget deficit.

In a statement, Moody’s Investors Service threatened to make a further downgrade to Irish sovereign debt if the Government does not do enough to stabilise public debt. “Should Ireland’s adjustment capacity prove to be insufficient to stabilise debt affordability and financeability at levels now assumed, a rating downgrade would follow,” Moody’s said yesterday.

However, the credit rating agency added that Ireland’s ratings may be upgraded if “current debt trends were reversed”.

Moody’s cut the Republic’s rating from “AAA”, the highest possible, to “Aa1” in July, and said its outlook for future ratings was “negative”.

A further ratings downgrade for Ireland’s sovereign debt would increase the cost of Government borrowing and exacerbate the problems facing the public finances.

While the difference in yield, or spread, between 10-year Irish securities and 10-year German bunds – a benchmark for the cost of borrowing – narrowed to as low as 136 basis points last month from 284 basis points in March, it remains five times above its average over the past decade.

The spread has widened this week in the aftermath of the Dubai debt crisis and was at 160 basis points yesterday.

There are fears the Government may have difficulty raising the proposed €4 billion in next week’s budget if it fails to reach an agreement with trade unions on public sector pay.

The Economic and Social Research Institute said in October that the €4 billion package would be enough to stabilise the budget deficit but would not reduce it. – (Additional reporting: Bloomberg)