Fitch Ratings downgrades Portugal’s sovereign debt

| March 24, 2010 | 0 Comments

International credit rating agency, Fitch, has today announced it has cut the credit rating for Portugal to ‘AA-’ with a negative outlook.

According to Fitch, Portugal’s prospects for recovery are weaker than its fellow nations in the euro zone, which could put pressure on public finances.

There have been fears for Portugal after the country experienced a slump in demand for Government bonds.

While Portugal is not in the midst of a debt-crisis like Greece, it has announced a series of new austerity measures as it seeks to avoid a similar crisis.

Portugal said welfare benefits are to be slashed, tax breaks scrapped and a new tax rate of 45% introduced for people with an income of more than £135,000 a year.

Portugal is seeking to slash its public deficit from 8.3% to 2.8% of GDP.

However, Fitch argues that the Portuguese Government needs to introduce “sizeable” budget measures if it is to meet its target of 2.8% of national output by 2013.

Meanwhile, commenting on today’s announcement, Douglas Renwick, Associate Director in Fitch’s Sovereign team, said: “A sizeable fiscal shock against a backdrop of relative macroeconomic and structural weaknesses has reduced Portugal’s creditworthiness.

“Although Portugal has not been disproportionately affected by the global downturn, prospects for economic recovery are weaker than EU15 peers, which will put pressure on its public finances over the medium term,” he added.

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