Portugal belongs to the list of three countries whose rating hasn't been improved by Fitch since the 2007 financial crisis. The rating recovery is slower on countries with high indebtedness and NPLs.
Portugal is one of the three countries whose rating hasn’t been improved by Fitch since the 2007 financial crisis, which reveals the rating agency’s wariness about the quality of the Portuguese credit profile in comparison to other European sovereigns.
Along with Portugal, only Italy and San Marino’s debt remained unimproved since the crisis blew over one decade ago, according to a report disclosed this Tuesday by Fitch. Spain, Cyprus and even Greece — countries which were also dragged by the markets’ turbulence — have seen improvements in their rating from Fitch, an agency that had thrown those countries’ assessment to the lowest thresholds.
The first downgrade of the Portuguese debt from Fitch took place on March 24, 2010, as a reflection of the first signs of stress in the country — in April of 2011, Portugal announced the financial bailout. By then, Fitch lowered Portugal’s rating from AA (which had never been changed since 1998) to A+. In one year and eight months, Fitch gradually downgraded Portugal’s debt by eight levels; in November of 2011, Portugal reached the lowest at BB+, already considered junk.
Meanwhile, Fitch did in fact improve Portugal’s outlook to positive in April of 2014, which meant it could make an upward revision of the Portuguese rating. But in March of 2016, it returned to a stable outlook because of some issues with the newly elected Government, the so called Geringonça (contraption). More recently, with the latest assessment in June 16 of this year, the agency replaced the Portuguese debt with a positive outlook, opening the way to removing Portugal from the “speculative investment grade” — something that could very well happen on December 15, when the new assessment is scheduled.
Rating recoveries are slower where a crisis leaves a legacy of high public or external debt, sizable bad debt in the banking system or enduring political fault lines.
Without mentioning Portugal’s specific case, Fitch highlights that “rating recoveries are slower where a crisis leaves a legacy of high public or external debt, sizable bad debt in the banking system or enduring political fault lines”.
After Fitch improved Portugal’s outlook, Moody’s also improved the countries’ outlook from stable to positive in the beginning of September. And last month, Standard & Poor’s announced the rarely seen decision of removing Portugal from the junk states without firstly improving the country’s outlook.