S&P raises Portuguese rating outlook to stable

The international ratings agency Standard & Poor’s raised on Thursday its outlook on Portuguese sovereign debt to stable from negative, owing to increased support from European institutions, but maintained the rating itself in speculative territory at “BB”.

The announcement came two days after eurozone finance ministers approved in principle an extension of the time allowed to Ireland and Portugal to pay back emergency aid extended by the European Union, International Monetary Fund and European Central Bank.

S&P said it also expected the so-called EU/IMF/ECB troika to give Lisbon more flexibility to meet its fiscal targets given that the country’s economy has not done as well as expected.

“In our opinion, this makes Portugal’s adjustment process more sustainable, both economically and socially, and reduces the risk that it will not comply with the program,” an S&P statement said.

“The stable outlook balances our view of Portugal’s near-term fiscal and economic challenges against continued multilateral support and our view of the government’s strong commitment to reform,” it added.

The rating’s agency expects the Portuguese economy to contract by 1.5 percent this year, before making a modest rebound in 2014, while the government has forecast a sharper slump of 2.0 percent in 2013.

S&P had already raised the outlook on Ireland’s sovereign debt, currently rated “BBB+”, to stable from negative in February.