Ireland's strong investment spending has been praised by Moody's Investors Service in its annual report.
But the report said that EU enlargement and inflation rates posed a challenge to Ireland's competitiveness.
It also pinpointed the spending and foreign direct investment as catalysts for the economy's capacity to generate growth and income.
Moody's Vice President Alexander Kockerbeck said this has also been helped by the country's population dynamics and immigration.
"A broad economic recovery continues to generate higher-than-expected fiscal revenues," said Mr Kockerbeck. "Despite additional - and needed - spending on healthcare and education there are no signs of a trend change in Ireland's overall fiscal policy stance as the authorities recognise the need to further improve structural expenditure control, especially regarding social security services."
The consolidation of public finances by the Government and the National Treasury Management Agency has helped reduce
gross debt to GDP ratios to below 30 per cent after 2003, which the report said provided a "cushion of flexibility for the country's finances".
Minister for Finance, Brian Cowen, announced plans to increase Government spending by €4 billion next year.
Echoing a number of other reports, Moody's pointed to inflation rates in Ireland as a key challenge to the country's competitiveness.
"One point of concern for international cost competitiveness is the Irish inflation differential with the Eurozone, which has started to widen again due to domestic inflationary pressures," said Mr Kockerbeck.
The annual report also highlighted property as a potential risk area, despite a significant increase in household's real income after debt service.
"House prices continued to increase in the first half of 2006 despite strong supply, reflecting strong demographics, substantial real income development, and ongoing catching-up effects," said Mr Kockerbeck.
However, high levels of household debt remain a concern, and the economy could be at risk if there was a slowdown in the booming property market, according to Moody's.
The current reliance on the construction sector, which accounts for about 12.5 per cent of all jobs, was a worry, it said, but cash from maturing government-backed savings schemes and infrastructure spending were seen cushioning any downturn in house building.
