Fitch lowers Portugal debt rating

LISBON - Portugal’s debt rating was downgraded one level by Fitch Ratings, which said the economy faces a “deteriorating” outlook as the government struggles to curb the euro region’s fourth-largest budget deficit.

By Joao Lima (Bloomberg)

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Published: Sat 25 Dec 2010, 11:45 PM

Last updated: Mon 6 Apr 2015, 10:11 AM

The long-term foreign and local currency issuer default rating was lowered to A+, the fifth-highest level, from AA-, Fitch said in a statement yesterday. The outlook is negative. Fitch on March 24 cut the rating by one step to AA-.

The company said in a separate report that there is a risk the European Union will need to rescue other euro member states after bailouts of Ireland and Greece.

“The downgrade reflects an even slower reduction in the current account deficit and a much more difficult financing environment for the Portuguese government and banks than incorporated into Fitch’s previous rating and the negative outlook assigned on 24 March 2010, as well as a deteriorating near-term economic outlook,” the rating company said.

The Portuguese government plans to cut state workers’ wages and raise taxes to convince investors it can narrow the budget gap, after the Greek debt crisis led to a surge in borrowing costs for high-deficit nations. Ireland became the second euro country to seek a bailout and the first to request aid from the European Financial Stability Facility last month.

The difference in yield between Portuguese 10-year bonds and German bunds, Europe’s benchmark, reached a euro-era record of 483 basis points on November 11. The spread was at 364 basis points yesterday.

The rating downgrade announced by Fitch is “difficult to understand” at the present time as Portugal’s 2011 budget has been approved and its banking system is “solid and resilient,” the Finance Ministry said yesterday in a comment sent by e-mail.

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