Moody’s hails Portugal budget deficit-cutting in 2013

Credit rating agency Moody’s Investors Service on Thursday praised bailed-out Portugal’s deficit-cutting performance in 2013.

The eurozone nation’s achievements would help boost investor trust in its ability to repay credit to investors, a key factor in determining sovereign borrowing costs, the agency said.

Portugal said last week it had cut the public deficit to about five percent of gross domestic product in 2013 from 6.4 percent of GDP the previous year, beating a 5.5-percent target set by its bailout creditors.

“This strong fiscal performance is positive for Portugal’s credit standing because the sovereign achieved it against a very difficult economic backdrop, pointing to the authorities’ determination and ability to improve Portugal’s public finances,” Moody’s analyst Kathrin Muehlbronner said in a report.

Portugal is preparing to exit a 78-billion-euro ($106 billion) bailout programme in mid-2014, less than three years after it was thrown the lifeline by international lenders.

The country has not yet decided whether to apply for the safety net of a precautionary line of credit from the eurozone’s European Stability Mechanism.

Moody’s said Portugal faced an annual bill of 10 billion euros in the next few years to finance its sovereign debts.

A eurozone credit line could be important, therefore, to help Portugal to maintain low funding costs and ensure sustained economic growth and lower debt ratios, it said.

However, Moody’s said it did not expect Portugal to make a decision on the credit line until close to the end of its bailout programme in June.

Portuguese lawmakers last week voted in favour of new budget cuts for 2014 to make up for previous money-saving measures that had been struck down by the Constitutional Court.

The new budget is designed to keep Portugal on target to curb its public deficit to the equivalent of 4.0 percent of GDP in 2014.

Moody’s said the 2014 budget target “can also be achieved” given Portugal’s 2013 performance, the prospect of 1.0-percent economic growth this year, and its proven ability to compensate for adverse rulings by the Constitutional Court.