Citing a “much more difficult financing environment for the Portuguese government,” ratings agency Fitch downgraded Portugal’s credit rating by one notch Thursday and warned of further downgrades.
By News Wires (text)
The agency cut its long-term foreign and local currency rating for Portugal to A-plus from AA-minus, with a negative outlook.
The short-term currency rating fell to F1 from F1-plus.
Fitch cited an increasingly difficult financing environment for Portugal since the agency's last assessment on March 24 and a "deteriorating near-term economic outlook."
It added that the country was expected to meet its public deficit target of 7.3 percent of gross domestic product this year.
But the agency predicted that Portugal was likely to fall into recession in 2011, when the government wants to cut the deficit to 4.6 percent of output.
"The fiscal measures, notably the 5.0 percent reduction in the average public sector wage bill, along with reforms to strengthen expenditure control and the fiscal framework, demonstrate the strength of political commitment to realising ... the target," Fitch said.
It said its current assessment was that Portugal would enter "a sustainable recovery" in 2012 that should help it cope with overall foreign debt pressure.
The country has seen its borrowing costs rise of late and is considered a potential candidate for an international rescue, of the sort accorded this year to Greece and Ireland.
Fitch said its current ratings were based on the assumption that Portugal would retain access to credit markets and would not seek assistance from the European Union and the International Monetary Fund.
On Tuesday, Moody's ratings agency warned that it may lower its A1 rating for Portugal owing to uncertainty about growth and borrowing prospects, but said it expected Lisbon to be able to pay its debts.
Portuguese Prime Minister Jose Socrates said earlier this month his government could still raise funds from the markets because investors understand the reforms the government has introduced.
"We are doing what we need to do -- consolidating the budget deficit very quickly and very effectively on the basis of structural reforms," Socrates told the Financial Times.
While Portugal has to cover 20 billion euros (26 billion dollars) in debt due by mid-2011, Socrates said Lisbon would have no problems in funding.
"Portugal has the necessary conditions to go on raising debt in the market," he told the FT.
"We have had no banking crisis or property bubble. Our only problem was an excessive budget deficit due to the global crisis and we are correcting that."
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