Private and public debt levels leave Portugal exposed to new crisis, says S&P

  • ECO News
  • 14 March 2019

According to Standard & Poor's, private and public debt levels in Portugal leave the country vulnerable to a new crisis.

Private and public debt leaves Portugal vulnerable to a new crisis, Standard & Poor’s (S&P) warns. Portuguese companies have the fifth highest level of effort paying interest and other debt charges in a universe of 32 countries, according to a study by the rating agency, cited by Dinheiro Vivo, a Portuguese online newspaper.

The government debt ratio appears to be the fourth largest in all developed countries, and tenth on the global list. These elements sound the alarm bells of S&P, which points out, however, that a possible crisis “may be inevitable, but it should not be as bad as the global financial crisis of 2008-2009.”

Corporate debt is one of the biggest risks. The debt service burden of total corporate disposable income averaged 49.7% at the end of the third quarter of last year. This ratio had begun to ease, but it seems that the trend has reversed.

Despite the reductions achieved in recent times, public debt also continues to leave Portugal exposed to a crisis. It puts us in tenth in the list of the most indebted states in the world, in terms of the size of the economy. When weighing the debt burden, we climbed to fourth place among 43 countries, with the government debt ratio set at 121.5% in 2018.

The rating agency reiterates that the risk of contagion is lower than in the last crisis, but it does point to some vulnerability factors. These include “extremely low” interest rates, a “much greater concentration of issuers in the” BBB “rating category, the diversity of risky areas such as derivatives markets, as well as default risks.

Already on Wednesday, Portugal returned to the markets, to put €1.25 billion in Treasury Bonds at seven and ten years maturity. Interest on the ten-year Portuguese debt was at near historical lows in anticipation of this auction, which is promoted by IGCP.

S&P’s study, “Next Debt Crisis: Will Liquidity Hold?” was based on data from the International Bank for Payments and the International Monetary Fund. This Friday, the agency is expected to present a new rating on Portugal’s rating.