Rating agency Fitch following political developments ‘very closely’

  • Lusa
  • 27 October 2021

Fitch is following "very closely" political developments in Portugal as the country's parliament prepares to vote on the minority Socialist government's budget bill.

Financial rating agency Fitch is following “very closely” political developments in Portugal as the country’s parliament prepares to vote on the minority Socialist government’s Budget bill, while leaving further comments on the Budget process for its next review of the country’s sovereign credit rating, which is scheduled for November 12, it told Lusa.

“We follow very closely the political developments in Portugal,” reads a Fitch response to questions from Lusa on the subject. “At this time, we will not comment on the Budget negotiations given the proximity of our next sovereign rating review, scheduled for November 12.”

Lusa also contacted two other credit rating agencies, DBRS Morningstar and Moody’s, which declined to comment, and late on Tuesday was awaiting a reply from another, Standard and Poor’s.

Parliament on Tuesday started the first reading of the draft State Budget for 2022, which is set to be rejected in the vote on Wednesday if the parties vote as declared – namely the decision by the Left Bloc and Communist Party to oppose the bill.

If the bill is rejected, the country’s president has already announced, he will dissolve parliament, leading to early elections.

Moody’s, while declining to comment, referred to its Credit Opinion of September 21, released four days after it had raised Portugal’s rating from Baa2 to Baa3. On that note, the US agency listed among “factors that could lead to a downward revision” of the rating, a “decline in political support for prudent fiscal policies, including an increase in calls for increased spending.”

Moody’s assessment of Portugal’s institutions and the strength of national governance, at aa3, is rated than those of Italy (Baa3 stable) and Spain (Baa1 stable) but lower than Ireland’s (A2 positive) – all of which were caught up in the euro-zone debt crisis. The assessment, according to the note, “reflects the authorities’ implementation of debt reduction and structural economic reforms, as well as slow progress in addressing weaknesses in the banking sector.”

On 17 September, Moody’s raised its rating on Portuguese debt from Baa3 to Baa2, with a stable outlook, citing expectations of improved long-term economic growth. The rating is now assigned to Portugal (Baa2) is the highest since 2011; only in 2018 did Moody’s take the country out of the ‘junk’ class by giving it a Baa3 rating.

Earlier, on September 10, fellow US ratings agency Standard and Poor’s (S&P) declined to issue a statement on Portugal’s debt, keeping its rating at investment grade BBB, and the outlook stable.

On August 27, Canadian agency DBRS Morningstar maintained the rating of Portuguese debt at BBB (high) with a stable outlook.

Previously, on May 14, Fitch had also maintained Portugal’s rating at BBB, investment grade, with a continued stable outlook.

Credit ratings are classifications given by the agencies that assess an issuer’s credit risk – its ability to pay the debt – for countries or companies.

The government’s draft state Budget for 2022 projects a growth in gross domestic product of 4.8% this year and 5.5% in 2022.

In the document, the government estimates that the public sector Budget deficit will be 4.3% of GDP in 2021 and will fall to 3.2% in 2022. It also predicts that the average unemployment rate next year will drop to 6.5%, “reaching the lowest level since 2003”.

Public indebtedness is expected to fall to 122.8% of GDP by the end of this year, from an estimated 126.9% this year.