The Portuguese economy received a double boost on Friday as ratings agency Moody’s raised its debt rating one notch to “Ba2,” hours after fellow agency Standard & Poor’s upgraded the country’s credit outlook.
The announcements provided a timely vote of confidence after Lisbon announced on Sunday last week it will make a clean exit from its multibillion-euro EU-IMF bailout package, following in the footsteps of Ireland by foregoing a credit line.
Portuguese Prime Minister Pedro Passos Coelho on Thursday said Lisbon would present its plans for the country’s financial future on May 17, the day it exits its three-year 78 billion euro (US$108 billion) bailout program. However, unlike Ireland, Portugal has already managed to return to debt markets before the end of its aid program.
Moody’s, in raising Portugal’s debt rating 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 said that the country’s fiscal deficit had been reduced by 1 percentage point more than expected last year, “indicating the government’s strong commitment to fiscal consolidation.”
Portugal has already managed to return to debt markets before the end of its aid program.
Moody’s said Portugal will not likely need to lean on the European Stability Mechanism for more protective support after it exits its bailout program.
“Portugal has regained access to the public debt markets and in addition the government has built up sizeable cash buffers,” it said.
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, adding that the government’s creditworthiness “can improve” in the short term.
Earlier on 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.”
“The economy and the labour market are recovering faster than we projected, with better-than-expected budgetary performance,” it said in a statement.
Portugal’s recession last year had been shallower than expected, helping Lisbon to curb the general government deficit to the equivalent of 4.9 percent of economic output last year, unexpectedly beating its 5.5 percent target, Standard & Poor’s said.
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