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March 16, 2011    

Moody’s cut Portugal sovereign debt rating

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by Kay Murchie
”Moody’s

Portugal has had its sovereign debt rating downgraded by Moody’s by two notches to A3 from A1 and kept the rating on a negative outlook - suggesting further downgrades are possible.

According to the ratings agency, it might have to downgrade again as a result of high borrowing costs and the difficulty of meeting fiscal targets.

The downgrade comes at a time of speculation that Portugal may need an EU bailout and follow Greece and Ireland and request emergency funds.

The country’s borrowing costs have risen – mimicking what happened in Greece and Ireland – just before they were forced to seek emergency aid.

The country’s 10-year cost of borrowing hit a fresh high of almost 8% last week.

There have been fears over recent months that the debt crisis in the euro zone could spread to weaker economies, such as Portugal.

Meanwhile, last week Prime Minister Jose Socrates outlined the latest in a series of austerity measures, designed to reduce the budget deficit.

However, the measures have met with criticism and the PM has warned that if the measures fail to gain support, his country may be forced to seek a rescue package.

Meanwhile, in a statement last night, Moody’s said: “The cost of market funding is likely to remain high until the deficit has been reduced to a sustainable level and the prospects for economic growth have improved.”

The agency also warned that Portugal could face “subdued” growth prospects for years to come.

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