Moody’s keeps Portugal’s rating at “junk” status

Despite recognising the considerable efforts by the Portuguese government in the past 12 months, US ratings agency Moody’s has decided to keep the country’s rating at Ba1.

 

The agency said it recognised the economic progress made in Portugal but considers that growth is still moderate, debt is high and the banking sector weak for it to raise Portugal’s investment status.

“Portugal’s economic growth and spending control allied with a fall in costs from low interest rates have resulted in a significant improvement in the country’s budget,” says Evan Wohlmann, Vice-President of Moody’s.

“Portugal’s return to the markets, the diversification of its economy and the relatively high average level of wealth compared to other countries with a Ba1(non-investment grade) rating are also in its favour.”

However, the agency said there were still challenges to overcome which prevented the agency from upping the rating to investment grade, namely “moderate growth potential, a continuing high debt and a weak banking sector.”

Portugal’s debt ratio receded substantially to 125.7% of GDP but is forecast to remain high in the coming years which Moody’s products will stand at 117% by 2021. The banks also have their work cut out going forward. “Despite improvements, the banking sector continues to be a risk for Portugal’s rating.

Regarding banks, the agency cites the relatively large size of the banking sector given Portugal’s size and population, the high level of defaulted loans on bank ledgers and poor profit performance.

Moody’s states that in order to lift Portugal from “junk” status it would need to see “positive budgetary trends sustained over a longer period  while the country’s debt continuing a downward trend over time”.