(Updates with comments from S&P starting in second paragraph. For more on the euro crisis, click on EXT4 <GO>)
Oct. 4 (Bloomberg) -- Portugal had its credit rating affirmed at the investment-grade level BBB- by Standard & Poor’s, which cited the nation’s commitment to a financial aid program.
The outlook remains negative due to the “implementation risks” of the country’s deficit-reduction plans agreed as part of the European Union and International Monetary Fund’s bailout, S&P said in a statement today. S&P, which also said the economy may shrink more than it previously expected, cut the country’s rating twice in March to BBB-, one level above junk status.
Portugal followed Greece and Ireland in April in seeking a bailout as its borrowing costs surged. Prime Minister Pedro Passos Coelho is cutting spending and raising taxes to meet the terms of a 78 billion-euro ($104 billion) aid plan and the government has already announced a one-time income-tax surcharge to help cover a budget shortfall this year.
“We consider that the government of the Republic of Portugal is strongly committed to following through with the EU- IMF program,” S&P said. “However, the Portuguese economy is likely to contract in the near term more severely than we previously expected due to weaker external demand and tighter credit conditions.”
Portugal’s credit rating was cut to below investment grade in July by Moody’s Investors Service. The long-term government bond ratings were lowered to Ba2 from Baa1, and the outlook is negative, Moody’s said in a July 5 statement.
The Portuguese government aims to trim the budget deficit from 9.8 percent of gross domestic product in 2010 to 5.9 percent in 2011 and to within the EU ceiling of 3 percent in 2013. Debt will reach 100.8 percent of GDP this year and peak at 106.8 percent in 2013 before starting to decline, the government predicted on Aug. 31. Debt was 93.3 percent of GDP in 2010.
Portugal is “on track” to meet its 2011 deficit goal, a team of EU and IMF inspectors said on Aug. 12. The IMF said in a Sept. 13 report that the government needs to improve control over expenditure and cut spending to meet its targets as it seeks to regain access to bond markets in 2013.
Portugal’s economy will contract 2.2 percent this year and between 2.2 percent and 2.3 percent in 2012, before expanding 1.2 percent in 2013, according to government forecasts.
European crisis monitor: CRIS <GO>
--Editors: Fergal O’Brien, Eddie Buckle
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