Moody's Investors Service said Tuesday it may cut Ireland's debt rating again, citing the increased cost to the government of repairing the stricken banking system, weak economic growth and rising borrowing costs.
Last week, the Central Bank of Ireland said it would cost the government €50 billion ($68.45 billion) in total to bail out the banks, which have suffered big losses as a result of property loans.
The government acknowledged that would push its budget deficit up to 32% of gross domestic product this year, the highest for any member of the euro zone since the currency was launched in 1999.
The government said it will in early November outline a new, four-year plan for cutting that deficit. It also cancelled planned bond sales for the rest of this year, citing the high cost of borrowing.
In July, Moody's cut the Irish government's rating by one notch to Aa2, citing similar concerns. On Tuesday, it said it had placed that rating on review for a possible downgrade.
"Ireland's ability to preserve government financial strength faces increased uncertainty as a result of three main drivers, which together would further increase its debt and aggravate its debt affordability," said Dietmar Hornung, Moody's lead sovereign analyst for Ireland.
A Moody's review can take up to three months to complete. Moody's last week cut its rating of the Spanish government after a similar review.