Moody’s downgrades Portugal’s credit rating to junk

Moody’s Investors Service slashed Portugal’s credit rating by four levels, from Baa1 to Ba2, or the so-called junk status, meaning high risk for investors. According to the rating agency, Lisbon is lagging behind in terms of measures aimed at reducing the deficit and the likelihood of the country to return to capital markets in 2013 is diminishing. Moody’s cited heightened concerns that Portugal may well need a second rescue package only two months after receiving €78 bn.

Among its main motives Moody’s notes that the Portuguese Government’s plans for budget cuts will not cover healthcare, public companies, local and regional governments. In 2010, the gap in the Treasury of Portugal exceeded 9% of the gross domestic product (GDP). The deficit should be reduced to 5.9% this year and to 3% by 2013. Moreover, the experts say that the Government will face formidable challenges in reducing spending, increasing tax compliance and achieving economic growth as a whole. Without decisive action on the part of major European players, concerns about the Euro are growing, adds the agency.

Portugal’s new centre-right government said in a statement that Moody’s did not take into account the strong political backing for the austerity measures and the extraordinary tax, imposed last week.
The European Commission, in turn, criticised Moody’s decision describing it as “dubious” and being inconsistent with the assessments made by the European Union, AFP reported.

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