Portugal debt woes grow

A leading credit rating agency downgraded Portugal’s debt amid growing concerns about the government’s
ability to service its borrowings, another piece of bad news for the euro zone
as it struggles to deal with a debt crisis.

Ratings said that Portugal’s prospects for recovery were weaker than its peers
in the euro zone, adding that this will put make it harder to shrink its budget deficit over the medium term.

sizable fiscal shock against a backdrop of relative macroeconomic and
structural weaknesses has reduced Portugal’s creditworthiness,” said Douglas
Renwick, Associate Director in Fitch’s Sovereign team.

2009, Portugal had a deficit representing 9.3 per cent of its national income.
That was higher than the 6.5 per cent forecast by Fitch as recently as September
and underlines why the ratings agency lowered its rating on the country by one
notch to double-A-minus.

the downgrade, Portugal’s debt is still considered investment grade and still a
few notches above its rating of crisis-stricken Greece

Fitch said the outlook remains negative and that a further downgrade could be
in the offing if the recovery is not as strong as anticipated in the coming two

said the negative outlook reflects its concerns about the potential impact of
the global economic crisis on Portugal’s economy and public finances, given the
country’s structural weaknesses and high indebtedness across all sectors of the

said the Portuguese government has to implement “sizable” spending cuts and tax
increases to meet its target of getting its deficit to 3 per cent of economic
output by 2013.

the government’s recently announced budget plans were “broadly credible,” Fitch
said “the risk of macroeconomic disappointment – with knock-on effects to the
deficit – is significant, particularly in the latter years of the government’s

underperformance in 2010 and 2011, on the budget or the economy in general,
could lead to another downgrade, Fitch said.