Just over 10 years ago Portugal’s credit ratings from the major ratings agencies stood at ‘junk’ status (non-investment) or high-risk investment grades.
Stories abounded of angry Portuguese citizens sending jiffy packets and boxes full of waste paper to the ratings agencies in the US and Canada accompanied by indignant letters that Portugal was worth a lot more than ‘junk’.
Today, the situation couldn’t be more different. For the first time in 13 years Portugal’s ratings have a string of straight ‘A’s with all major agencies giving critical upgrades with Standard & Poor’s upping Portugal’s rating on March 1.
In a statement from the Ministry of Finances, it informed that the S&P agency increased Portugal’s risk rating to A- (outlook positive) which could mean a further rating rise if Portugal maintains its current economic trajectory.
With this decision, Portugal has achieved straight ‘A’s from all the ratings agencies. Portugal’s national debt is eligible for investment from a larger number of international operators, making lower interest rates (on bonds) possible.
The Portuguese Minster of Finances, Fernando Medina stated: “This important decision by S&P means that Portugal is now worthy of ‘A’ investment grade from all the ratings agencies (S&P, Moody’s, Fitch, DBRS, and Scope) which has happened for the first time in 13 years.
“(Portugal’s) economic strategy of recent years has enabled the public debt to be brought down and reinforce revenues, ensuring historically high levels of employment.
Portugal is one of the countries with the best economic and budgetary performances in Europe. This is a decision with a concrete impact on the State, for our companies and banks, and for our families. Everyone is more protected from the current high interest rates and will enjoy lower credit costs.”
Before the Troika’s intervention in Portugal in 2011, the four agencies all rated Portugal’s sovereign debt at ‘A’ level. They cut their ratings drastically after the request for a €79 billion bailout.
It then took seven years for the country to move out of “junk” ratings, and now, after 13 years, the trajectory of debt reduction is the main justification for agencies returning the country’s risk to ‘A’ level.
“Portugal has managed to reduce its debt load while maintaining a trajectory of economic growth, factors that could positively influence a possible rating review” by S&P on Friday, Banco Carregosa’s Investment Director, Filipe Silva, told Lusa. It did.
Filipe Garcia, president of IMF – Informação de Mercados Financeiros – “the agency should emphasise the very good evolution of public accounts, with a significant reduction in the weight of debt/Gross Domestic Product (GDP) and better economic activity compared to the eurozone average, leading to an improvement in the fiscal position”.
Garcia emphasised that “in addition, country risk has been falling consistently“, giving the example that “taking the spread against Germany for a 10-year maturity as a reference, Portugal ‘pays’ 65 basis points more than Germany, the lowest level in more than two years”.
“It’s also a spread that compares very favourably with other eurozone issuers”.
Analysts consulted have also downplayed the impact of S&P’s planned assessment in the midst of an election campaign.
“The approach of the parliamentary elections has not had an impact on Portuguese debt,” said Garcia, arguing that “the market’s perception is that all possible government solutions will continue to aim to follow the path of having at least balanced budgets and trying to reduce the debt/GDP weight.”
“This could be a factor, but it shouldn’t prevent the rating from going up,” he added.
DBRS currently rates Portuguese debt at ‘A’, with a stable outlook; Fitch at ‘A-‘, with a stable outlook; and Moody’s at ‘A3’, with a stable outlook.
The rating is an assessment given by financial rating agencies, with a major impact on the financing of countries and companies as it evaluates credit risk.
The rating agencies’ timetables are merely indicative, and they may choose not to give an opinion on the scheduled dates or to go ahead with an unscheduled assessment.