Moody’s on Friday raised the debt rating of Portugal one notch to “Ba1” and said it had a stable outlook, despite troubles at one of the country’s major banking groups.
Moody’s cited the Portuguese government’s “comfortable liquidity position, with regained access to the public debt markets and sizeable cash buffers” as a factor in making the upgrade.
The rating firm said it expected that the country’s fiscal consolidation would remain on track despite unfavorable rulings by Portugal’s constitutional court.
“This should support a gradual reduction in the very high public debt burden in the coming years,” it said in a statement. “The first driver behind the upgrade is Moody’s view of the government’s strong commitment to fiscal consolidation, despite repeated setbacks stemming from the adverse rulings of the country’s constitutional court.”
In May, Portugal’s constitutional court rejected austerity measures included in Lisbon’s budget for this year as part of the government’s ongoing cutbacks, as it hopes to reduce its deficit to 4 percent of GDP. Portugal exited a three-year international bailout program in May, after receiving 78 billion euros (US$106 billion) from the EU and the IMF in exchange for a series of stringent reforms.
Moody’s said the government has already announced measures to “compensate” for the court’s adverse rulings.
Moody’s, which had lifted Portugal’s rating by one notch in May, highlighted that the country’s public debt ratio stands at around 120 percent of GDP, “a very high debt burden that severely restricts” Portugal’s room for fiscal maneuver.
“Moody’s does not expect that the current uncertainties surrounding Banco Espirito Santo will have a material impact on the government’s balance sheet,” it added.
Banco Espirito Santo the biggest bank in Portugal by capitalization, has been hit by suspicion that its main holding company covered up a 1.3 billion euro hole in accounts.
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