Standard & Poor's on Tuesday cut its ratings on Ireland and gave the country a negative outlook, saying the cost of supporting the country's ailing financial sector will further weaken its financial flexibility.
S&P cut Ireland's long term rating one notch to AA-minus, the fourth highest investment grade. A negative outlook indicates another downgrade is more likely over the next one-to-two years.
"The projected fiscal cost to the Irish government of supporting the Irish financial sector has increased significantly above our prior estimates," S&P said in a statement.
S&P said it now expects Ireland will need to spend 90 billion euros to support its banking system, up from its prior estimates of 80 billion euros, including capital used to improve the solvency of financial institutions and losses taken from loans the government acquired from banks.
Jitters over Ireland's finances have increased since Anglo Irish Bankearlier this month won clearance for a fresh bailout of up to 10 billion euros ($12.7 billion) from the Irish government, which was more than expected.
Ireland's central bank governor said last week that Anglo would end up costing taxpayers up to 25 billion euros.
The new capital injections in Anglo will help push Ireland's net government debt to 113 percent of gross domestic product in 2012, S&P said. That is more than 1.5 times the median for the average of other countries in the euro zone, and well above the debt burdens of similarly rated countries, including Belgium and Spain, S&P said.
"We believe that the government's support of the banking sector represents a substantial and increasing fiscal burden, which in our view will be slow to unwind," S&P said.
The euro fell against the dollar following the rating cut.
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