Finance minister not expecting rating agencies to change outlook

  • Lusa
  • 3 November 2021

João Leão explained this Wednesday that the government is not expecting rating agencies to change their outlook on Portugal until the political and governing uncertainty is resolved.

Portugal’s finance minister João Leão, said in Lisbon on Wednesday that the government is not expecting rating agencies to change their outlook on Portugal due to the rejection of the draft Budget for 2022.

​​​​​​​The minister was speaking at the end of the solemn session of the 175th anniversary of the Bank of Portugal (BoP), which took place today at the Museu do Dinheiro, in Lisbon, and was attended by the prime minister, António Costa, and the president of the European Central Bank (ECB), Christine Lagarde.

Also asked about the effects of the Budget rejection on the interest rates of the Portuguese ten-year public debt, João Leão ruled out major negative effects, and expressed the desire to overcome the current “political uncertainty”.

“Let us hope that this situation of political uncertainty does not last long because it is important to give stability to the country and that it can guarantee the strong recovery that we are already seeing, and guarantee the economic convergence that we are achieving with the European Union,” the minister maintained.

Leão also recalled that “Portugal has reached this situation, this year, with great international credibility, which has meant that financing conditions are now more favourable than those of countries such as Spain, Italy or Greece”.

The minister also recalled that “Portugal had an improved rating following the pandemic,” something he said was “a very positive sign for the future,” anticipating that “further improvements in rating will have to wait for the resolution of the political situation.

On Monday, Moody’s said that the Budget rejection created a political impasse that is negative for Portugal’s credit and increases uncertainty about investments from European funds.

In an analysis, Moody’s considered, in light of data indicating that early legislative elections will be inconclusive, that this uncertainty is “negative for the credit” of Portugal and that the possible political impasse creates risks that the government will not meet agreed targets, which may prevent the disbursement of funds from the European Union recovery plan.

The rating agency noted that these European funds are “crucial for Portugal’s economic growth”.

Moody’s said that if a party managed to get a majority in parliament in the next legislative elections, this would be positive for Portugal’s credit rating as it would remove the risk of political uncertainty.

However, it warns that if a new government wants to redefine the use of European funds, this will require new approval by the European Council and will lead to significant delays in financial disbursements.

The government’s proposal for the 2022 Budget was ‘voted down’ with the votes against by PSD, BE, PCP, CDS-PP, PEV, Chega and IL, and early legislative elections must now follow.

The President of Portugal, Marcelo Rebelo de Sousa, will address the country on Thursday, after hearing the Council of State, on the dissolution of the parliament and the scheduling of elections.

Marcelo Rebelo de Sousa has spoken to the parties in Belém on this issue. Seven of the nine parties with parliamentary representation have indicated the date of January 16 as the most suitable for holding early legislative elections, including the PS and PSD.