Portugal’s Rating Slashed Down by Moody’s
Portugal’s rating regarding their debt status was set to junk status as of yesterday by Moody’s Investors Service. With this, much pressure is now put up towards the governments consisting Eurozone to make plans on a long-term solution concerning financial crisis.
Although Portugal has settled a rescue package of $116 billion last May, Moody’s still have seen the risks of the country to need their second assistance sooner than they could increase funds again in the bond markets. This would also affect lenders from private sectors. Portugal’s rating was cut down from Baa1 to Ba2, expressing a negative outlook and forecasting that there would be probable cuts in the future.
Additionally, the agency also cautioned the country of a probable shortage regarding their financial targets it had discussed with the International Monetary Fund and EU under bailout terms. This is because the country’s facing alarming challenges such as increasing tax compliance, supporting the banking system, reducing spending and achieving economic growth.
The rating came to notice after one month of Portugal’s general elections wherein the people have ousted Jose Socrates’ Socialist government. From that time on, the new government has pressed reforms such as austerity measures assured by Portugal in exchange of their bailout. This was led by Prime Minister Pedro Passos Coelho and Social Democrats.
With matters regarding practicality, High Frequency chief economist Carl B. Weinberg expressed that the agency’s cut indicates that there is a small space of investors that can hold debts of Portugal. He further noted that the country does not need to have a loan, meaning there is limited immediate damage on the finances of the government.