Fitch Ratings has taken Portugal out of its embarrassing ‘junk’ rating category, lifting it two grades to 'lower medium investment grade, BBB.'
This is the best rating of the four key agencies and largely is based on the long-overdue decline in Portugal’s public debt and the expectation that this will continue to fall.
An upgrade was widely expected but not a two point shift that has delighted the government and its Finance Minister, Mario Centeno.
"Fitch's assessment is that the debt path is firmly downward and that the decline in the public debt/GDP ratio is expected to continue in the medium term. This favourable dynamic is driven by a combination of previous structural budgetary measures, the recent cyclical recovery and the substantial improvement in financing conditions," reads the Fitch Ratings report.
Despite the Bank of Portugal choosing a US vulture fund as the new controlling shareholder of Novo Banco, ‘greater bank stability’ was an important factor for Fitch Ratings, as were lower financing costs achieved by swapping Troika debt for lower interest borrowings.
According to the agency, the markets may react positively next week due to this two-level upgrade, but it does not expect a big move as it is the year-end when funds close their positions.
As for deficit estimates, Fitch Ratings is going for 1.4% this year and 1.2% next year with growth at 2.6% this year and 1.9% in 2018.
Normally, countries with the same rating as Portugal’s 'BBB' have 41% of public debt to GDP. Portugal is expected to end the year with a ratio of 127%, but Fitch has overlooked this as other indicators are pointing in the right direction – a vote of confidence in the government and Centeno’s deft handling of the economy.
Of the three rating agencies, S & P was the first to lift Portugal from ‘rubbish’ to ‘investment’ with an upgrade in mid-September.
In October, Moody's kept Portugal at ‘junk, but with a positive outlook’ and it was expected that Fitch Ratings would improve its rating by one level, so two is a big bonus.
Ever-faithful Canadian rating agency, DBRS, was the only one of the big four to assess Portugal above ‘junk’ during the debt crisis.
The Finance Minister welcomed Fitch Rating's decision to raise Portugal's debt rating two levels, "Never before has one of the top three rating agencies decided to increase the assessment of Portuguese sovereign debt by two steps. This classification reflects the path of control of public expenditure and the improvement of the current account. This is the recognition of the Portuguese Government's economic policy options."
Mario Centeno attributed the rise to "recent positive and structural inflection in key areas: robust growth since mid-2016, the dynamism of job creation and falling unemployment to 8.5%, the recent strengthening of the financial sector, the constant meeting budgetary targets and the firm and sustainable reduction of public debt that began to be registered this year."
Comments
Must take note, that your glass is half empty and not half full.
hmm.
we haven't come through said turbulent period but are in fact, in the middle of a shit storm created by said turbulent period
The main rating agencies are based in the USA and it makes sense that disputes should be conducted in Court's that speak (but not exclusively) in English.
It's correct that Portugal, like the majority of countries worldwide, have come through a turbulent period of time, but the financial forecasts have indicated that Portugals economy is expanding and the outlook is positive.
It was tragi-comic, at the start of the 2008 crisis for the south Europeans to clamour for a European Ratings Agency only for the north Europeans to make it clear they would not trust it. Having adjusted their countries ratings politically - only the Graeco-Romans would take them as usable.