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Moody’s upgrades Portugal debt rating

Published on 10/05/2014

Moody's raised the debt rating of Portugal one notch to Ba2 Friday and said a further upgrade was possible as the country begins to pull away from its financial crisis.

“Portugal’s fiscal situation has improved more rapidly than initially targeted and the public debt ratio will start declining this year,” Moody’s said.

A Ba2 rating leaves Portugal in junk bond territory, two notches below investment grade.

Moody’s noted that the country’s fiscal deficit had been reduced by one percentage point more than expected last year, “indicating the government’s strong commitment to fiscal consolidation.”

It also pointed to Lisbon’s expected graduation within weeks from its three-year International Monetary Fund-European Union bailout program, and that it will not likely need to lean on the European Stability Mechanism for more protective support after that happens.

“Portugal has regained access to the public debt markets and in addition the government has built up sizeable cash buffers.”

Its economic recovery “is gaining momentum, with signs of broadening beyond exports, which continue to perform strongly.”

Moody’s said it has the country now under review for another upgrade, saying the government’s creditworthiness “can improve” in the short term.

An upgrade would happen if the country manages to bring its public debt ratio, now near a high 130 percent of gross domestic product, onto “a clear downward path in the coming years.”

Earlier Friday Moody’s rival Standard & Poor’s upgraded the outlook for Portugal’s creditworthiness, citing the bailed-out nation’s unexpectedly strong economic and deficit-cutting performance.

Standard & Poor’s said it had raised the outlook to “stable” from “negative” for Portugal’s long-term sovereign debt, which is rated at a junk-bond equivalent BB, and its short-term sovereign debt, which is rated at B.