AFP - Moody's warned on Tuesday it may lower by one or two notches Portugal's A1 rating owing to uncertainty about growth and borrowing prospects, but said it expected Lisbon to be able to pay its debts.
"In Moody's opinion, Portugal's solvency is not in question," Anthony Thomas, Moody's Vice President and lead analyst for Portugal was quoted as saying in a statement.
"But the likely deterioration in debt affordability over the medium term and ongoing concerns about the economy's ability to withstand fiscal consolidation and private sector deleveraging mean its outlook may no longer be consistent with an A1 rating."
Moody's emphasised its concern over Portugal's growth prospects, which will affect its long-term ability to repay debts, rather than markets refusing to lend to Lisbon at affordable rates and forcing it seek a bailout, as the driving force behind its review.
The rate Lisbon must pay to borrow funds has been driven up over the past months as investors wonder if Portugal may follow Greece and Ireland in needing an international bailout to help put its finances in order.
The Portuguese government has adopted austerity measures, but has had difficulty in achieving budget savings. The country has also only managed anaemic growth for years, making it more difficult for repay its debt burden.
Moody's expressed concern about the rising cost the Portuguese government is going to have to pay to finance its debt, but noted that for the moment the debt markets remain open to Lisbon.
"The markets have remained open to the Portuguese government," added Thomas. "But it is having to pay an elevated price, which if sustained will increase substantially its debt service costs over time."
Moody's said the lack of success in reducing the budget deficit by much this year, excluding one-off measures, has added to its concerns.
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