Ireland has won the highest possible rating from credit agency Standard & Poor's despite the latest downturn in the Exchequer finances.

The much desired AAA rating for fiscal prudence and debt reduction follows a long campaign by the National Treasury Management Agency to persuade the US rating agency of the soundness of the Exchequer finances. Ireland is only the sixth EU country to win the top rating from S&P, following Germany, France, Netherlands, Luxembourg and Austria.

The rating means the Government should be able to borrow funds at slightly lower rates than at present as the risk of buying Irish bonds has now theoretically decreased. The news could hardly have come at a better time for the Government and the NTMA which are facing the prospect of raising new loans next year as the Exchequer finances shrink.

S&P said the upgrade reflected the Government's success in increasing fiscal flexibility, and its commitment to continued fiscal prudence, which the agency said was supported by an increasingly diverse and resilient economy.

"The general government accounts have recorded surpluses since 1997, and despite a weaker-than-expected economic outlook, and the near-term prospect of an election, the Government's commitment to fiscal discipline remains unchallenged," S&P said in a statement.

The news follows the latest Exchequer finance figures released on Tuesday which underline the possibility that the Exchequer will once again be heading for a deficit as tax revenues fall and spending demands climb. But S&P managing director, Mr Conrad Reuss, said the committee discussion had taken the downturn into account.

"The rating is relatively immune to the business cycle and the weakening of the global environment. It would be a big surprise if Ireland were not affected and probably affected more than other EU countries by the global downturn.

"But Ireland has a strong fiscal performance and the way the debt burden has been brought down means that from a credit point of view there has not been a weakening," he said.

According to Mr Reuss, as long as the Government runs balanced budgets or records small surpluses there should not be a problem with the rating.

Mr Jim Farrell of the NTMA says the upgrade is "terrific news" and recognises the very low debt ratio as well as the stability of the public finances.