International credit rating agency and financial powerhouse Moody's has downgraded Ireland's government bond ratings to the Aa2 grade, blaming banking liabilities, weak growth prospects and a substantial increase in the debt to GDP ratio.

The move is likely to bring further instability to Ireland’s already shattered economy and weaken international perceptions of the reliability and security of governmental bonds.

Moody's lead analyst for Ireland Dietmar Hornung said it was a "gradual, significant deterioration, but not a sudden, dramatic shift", before adding - more hopefully - that the beleaguered country had "turned the corner", perhaps hinting that Ireland’s government paper could be viewed more favourably in the near future.

Among Ireland’s many negative economic signals the general government debt-to-GDP ratio was at 64 per cent at the end of last year, up from 25 per cent before the financial crisis took hold, and is continuing to rise.Ireland’s unemployment level also remains worryingly high.

The credit agency’s analyst also said that: “Today’s downgrade is primarily driven by the Irish government’s gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability,”.

NAMA - the controversial National Asset Management Agency - also played a key role in the agency’s decision to downgrade Ireland’s debt amid continual concerns that Anglo Irish may need a further injection of capital to remain financially afloat.

The agency elaborated on the government’s financial woes by adding in its statement that: "While we do not expect the government - not even in a moderately stressed scenario — to incur permanent losses in excess of 25 per cent of the country’s 2009 GDP as a result of these obligations, we believe that the uncertainty surrounding final losses would exert additional pressure on the government’s financial strength."

The agency also predicted that Ireland’s debt-to-GDP ratio would stabilise at 95 per cent to 100 per cent over the next two to three years, and cited Ireland’s previous capability at attracting Foreign Direct Investment as one of the positive factors “supporting” the new rating from Moody’s.

Fine Gael's deputy finance spokesman Kieran O'Donnell described the rating downgrade as a vote of no confidence in the Government's economic and banking strategy, adding that: “The Government’s disastrous banking strategy already means that Ireland now has the highest deficit in the EU since the Second World War."

“Now Moody’s decision shows that international markets appreciate the massive costs associated with the Government’s plan to pour €25 billion into the black holes of Anglo Irish Bank and Irish Nationwide," finished the statement.

Meanwhile Sinn Fein’s finance spokesman said that news of the downgrade would be “crippling” for the whole economy, adding that the higher cost of borrowing was leading to increased pressure on small household units to get by.

The party spokesman sais that:: “The cost of borrowing will increase for the Irish Government as a result of their unfettered allegiance to an ailing banking system and especially the zombie Anglo Irish bank. Once more, the inadequacy of Government policy concerning the banks has been revealed. The Government’s home grown crisis, which has produced weak banking and property sectors, is once more curbing economic growth."

Despite news of the downgrade Ireland is still likely to sell the full allotment of up to €1.5 billion of 2016 and 2020 bonds tomorrow, according to the ING Groep NV.