Moody’s Raises Outlook on Portugal’s Public Debt to Positive

12 August 2019

Moody’s, the US-based credit rating agency, elevated the outlook for Portuguese public debt to positive while holding the current rating steady at Baa3, a step above junk. The firm noted that “the first driver of the positive outlook is the continued improvement in Portugal’s fiscal performance, which is now expected to improve the country’s key debt metrics at a faster pace than anticipated a year ago.” The firm added that, “the affirmation of Portugal’s Baa3 rating is also driven by macroeconomic fundamentals that balance the relative wealth and diversification of the country’s economy against its modest growth prospects and structural economic constraints.”

“Moody’s also expects Portugal’s debt-to-GDP ratio to fall below 110% by 2022,” the statement said, adding that “while Moody’s projections are more conservative than the government’s, [Moody’s] now expects the debt ratio to fall to 108% by 2022, compared with 114% at the date of the last review.”

“Political pressures to raise public sector wages and health spending will continue,” says the agency, which believes that “the government will be able to withstand these pressures enough to keep the budget deficit below 1.0% in the next years.”

The deficit “in 2018 … fell to 0.5% of GDP, better than [the government’s] target of 0.7%. The government has somehow resisted successive spending pressures despite the upcoming [legislative] elections, ” which ,“combined with strong tax receipts, job growth, lower interest costs and restrained spending will result in the 2019 deficit falling to the government target of 0.2% of GDP.”

Portugal’s 10-year bond yield was at about 0.3% on Friday. It peaked at 18% in 2012 at the height of the euro region’s debt crisis.

Original Story: Dnotí / Lusa

Adaptation/Translation: Richard D. K. Turner