Financial ratings agency Fitch on Friday upgraded Portugal’s rating to ‘A-‘ from ‘BBB+’ and maintained a stable outlook, it said in a statement.
Fitch justified the decision with the “sustained” decline in the government debt ratio compared to gross domestic product (GDP) and the development of the budget balance, also highlighting the economic prospects and the “resilience” of the banking sector.
The North American agency becomes the second to rate Portugal’s sovereign debt at ‘A-‘, after DBRS did so in July.
Fitch expects the government debt ratio to remain in a sharp downward trend, forecasting it to fall to 104.3% this year from 112.4% at end-2022, reaching 96.5% in 2025.
“The projected drop of more than 38 percentage points in GDP compared to the pandemic-related maximum in 2020 is the largest among countries classified in the ‘A’ category of government bonds”points out.
Believing that there is “a high degree of commitment to fiscal consolidation on the part of the current Portuguese government, whose mandate expires in 2026,” Fitch analysts note that the government debt ratio will be much higher than the median “A” in 2025 . but risks to debt sustainability are limited by a moderate debt repayment schedule.
The agency also emphasizes that this year’s public finance performance should be better than forecast in the Spring Stability Program.
For 2023 as a whole, Fitch expects a budget surplus of 0.5% of GDP, a substantial revision compared to the agency’s April projection (-1.2%).
Looking ahead, the report warns that a reversal in the downward trajectory of public debt or a severe economic recession or external shock that harms the country’s growth potential could lead to a downward revision of the current assessment.
On the other hand, evidence of improved medium-term growth prospects, for example supported by the implementation of growth-enhancing structural reforms and the effective use of European Union funds, and a continued reduction in the public debt-to-GDP ratio could lead to an improvement of the assessment.
In April, Fitch had left Portugal’s sovereign debt rating unchanged, after upgrading Portugal’s rating from ‘BBB’ to ‘BBB+’ in October last year, with a stable outlook.
The next agency planning to comment on Portugal is Moody’s, on May 19.
The ‘rating’ is an assessment given by financial rating agencies, with a major impact on the financing of countries and companies, because it assesses credit risk.
Source: DN
