The agency improved Portugal's rating, removing it from the junk status without first improving its outlook to positive. This move, Standard and Poor's say, "is not usual", but it's "not that rare".
Standard & Poor’s (S&P) tells ECO the increase in Portugal’s rating without a change in the outlook first, from stable to positive, “is unusual”, but “not rare”. Marko Mrsnik, the analyst responsible for Portugal’s report, acknowledges, however, that he can’t recall the last time it happened.
S&P surprised everyone by becoming the first of the three largest agencies to change the Portuguese debt rating out from the junk level, from BB+ to BBB-, which means the Portuguese debt is at an investment grade — an improvement the Government never doubted. The Finance ministry mentioned this decision was based on “the acknowledgement of a recent structural change in the financial sector, in the comprehensive economic growth, supported by a strong investment and exports dynamic, and in the control of expense and public debt”.
ECO asked S&P three questions
S&P upgraded the rating without changing the outlook to positive first. Is this usual? When did this happen for the last time for a sovereign?
Moving a rating without previously assigning an outlook is not usual, but is not that rare neither. Unfortunately, I don’t recall the last time this happened recently, but again it’s not rare.
Six months ago, S&P decided to maintain the outlook. What have changed in this period of time?
Compared to our March review, we now project that Portuguese GDP will grow by more than 2% on average between 2017 and 2020 compared to our previous forecast of 1.5%. Moreover, we expect this year’s budget deficit target of 1.5% of GDP to be met, putting the government debt to GDP ratio on a more firmly declining path. And we believe that risks of a marked deterioration in external financing conditions have receded, and that the ECB will ensure a smooth transition toward a less accommodative monetary stance.
In your perspective, what is necessary for Portugal to maintain the IG rating in S&P but also for another agencies?
Our rating outlook is supported by our expectation of solid economic growth and further budgetary consolidation, as well as receding external financing risks over the next two years.
Economic policy making that supports creditworthiness is also important in this sense. We could lower the ratings if we saw a marked weakening in economic growth, for example, due to a significant economic policy deviation or if there are no further growth-enhancing structural reforms; or the government adopting policies that could hurt Portugal’s access to international financial markets; or the government’s budgetary position deviating considerably and negatively from our expectations or Portugal’s external adjustment being reversed, with the current account balance shifting into deficit.