Moody’s will only increase Portugal’s rating if progress is sustainable
Moody’s stated it will only remove the Portuguese public debt from the 'junk' status if it concludes that the progress Portugal is making is sustainable and if debt reduction is steady.
The rating agency Moody’s stated, this Saturday, that the rating given to Portugal will be improved if Moody’s concludes that the fiscal and economic progress achieved is sustainable, and if debt reduction is constant. Moody’s had scheduled a revision on the Portuguese rating for this Friday, April 20, but the agency chose not to make any decision, maintaining Portugal’s rating at ‘Ba1’, which is considered ‘junk’.
The Portuguese news agency Lusa asked Moody’s about this Friday’s decision, and the rating agency stated that the assessment it had made on the Portuguese public debt last September lead to an improvement in its outlook to positive. Moody’s also pointed out that the rating could be improved in an 18 months’ time frame.
“As we have stated at the time, the rating given to the Portuguese sovereign debt will be revised upwards with an investment grade, if we conclude that the positive trend in the economy and on the fiscal front are sustainable and that very high debt enters a steady downward tendency“, is stated in the answer sent by Moody’s to Lusa, via email.
Moody’s explains that this conclusion should be backed by “sustainable fiscal improvements that point to a more consistent record of primary surpluses [excluding costs with public debt], proving that economic growth continues to be wide, supporting a resilience to shocks, and that there are new advances in the recapitalization of weaker banks”. The North American rating agency should make a decision about Portugal’s rating on October 12; nonetheless, Moody’s highlights the calendar is merely indicative.
After improving the outlook of Portuguese public debt in September, and a vice president of the agency stated that Portugal would soon return to an investment grade, the markets were expecting Moody’s would remove Portugal from the junk status last Friday. However, Moody’s chose not to revise the rating it had given Portugal, maintaining the ‘Ba1’ grade since July of 2014.
Even so, the North American agency continues to be the only one among the four largest rating agencies to assess the Portuguese debt with a speculative rating, while Standard & Poor’s, Fitch and DBRS have placed Portugal in an investment grade.
