Moody’s anticipates Portugal’s deficit to reach 9.2% in 2020

  • ECO News
  • 29 July 2020

In a report released Wednesday, the financial rating agency warned of Portugal's high indebtedness, which limits the country's shock absorption capacity.

Moody’s anticipates that Portugal’s deficit will soar to 9.2% of GDP this year and fall only to 4.8% next year. The estimate, released this Wednesday by the rating agency, is more pessimistic than that of the government, which points to a negative balance in public accounts in 2020 of 7%.

“Slower economic activity and government budgetary measures in response to the coronavirus crisis will have a significant negative impact on Portugal’s public finances,” warns the US financial rating agency. Besides the hole in public accounts, the deficit ratio will be penalised by the fall in GDP, which Moody’s estimates will contract by 9.5% (much higher than the 6.9% projected by the government).

To cope with this deficit, Portugal is strengthening demand for market financing, with the Executive anticipating that public debt will rise to a record 134.4% of GDP. Moody’s does not make an estimate but warns of the impact of heavy public debt.

“The main challenge for Portugal’s rating is the very high weight of debt, which limits the country’s ability to absorb future shocks,” says Sarah Carlson, senior vice president of Moody’s and author of the report. “The government’s level of capacity to manage the increasing pressures on public spending related to the coronavirus outbreak and the ability to reduce debt will continue as a key factor.”

The report is released almost two weeks after Moody’s decided not to comment on Portugal. Thus, Portugal’s rating remained at Baa3 with a “positive” outlook. This is the only one of the largest financial rating agencies to give Portugal a positive rating outlook.