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Portugal keeps much-needed access to EU financial help

Portugal kept its much-needed access to EU financial help Friday after a European Central Bank-approved credit agency maintained its rating of Portuguese debt at investment grade level.



Lisbon: Portugal kept its much-needed access to EU financial help Friday after a European Central Bank-approved credit agency maintained its rating of Portuguese debt at investment grade level.

Toronto-based DBRS announced it had kept Portugal`s rating at "BBB" level, with a "stable" perspective.

"The rating reflects Portugal`s eurozone membership and its adherence to the EU economic governance framework, which helps foster credible macroeconomic policies," it said in a statement.

"The centre-left minority government continues to demonstrate commitment to comply with the EU fiscal rules and important structural reforms are not expected to be reversed," it added.

DBRS`s decision was much anticipated as it is the only one of the four agencies accepted by the ECB to have maintained Portugal`s rating in an investment grade category despite the country being hit hard by a debt crisis.

If the agency had downgraded its rating, the ECB would no longer have been allowed under its rules to purchase Portugese government bonds as part of its quantitative easing programme.

The ECB purchases of the bonds on the secondary markets help keep the interest rates down and ensures a market for new issues by governments, meaning a key source of financing for governments remains open and affordable.

But DBRS warned that "Portugal faces significant challenges, including elevated levels of public sector debt, low potential growth, ongoing fiscal pressures, and high corporate sector indebtedness."

Portugal received a 78-billion-euro international debt bailout in 2011 that saved it from defaulting when it could no longer issue debt at affordable rates, but in return the country had to introduce a string of austerity measures.

In four years, over 78,000 public sector jobs were cut -- more than 10 percent of the total -- alongside other steps the creditors said were needed to return the public finances to balance and put the economy back on track.

A minority Socialist government which came to power last year has reversed some austerity measures imposed by the previous conservative administration while continuing to reduce the deficit, although at a slower pace.

The government, which relies on the support of two smaller hard left parties for its survival, unveiled a draft 2017 budged last week that seeks to raise pensions and gradually reduce an income tax surcharged introduced back in 2011 at the height of Portugal`s debt crisis.

To compensate, the budget introduces a new tax on sugary drinks and a new levy on property wealth exceeding 600,000 euros per person.

Prime Minister Antonio Costa`s spending plan targets a budget deficit of 1.6 percent of economic output in 2017, down from a forecast 2.4 percent this year -- well below an EU limit of 3.0 percent.

Portugal posted a budget deficit of 4.4 percent of gross domestic product in 2015, the third highest in the EU after Greece and Spain.

The finance ministry welcomed DBRS`s decision, saying in a statement that it "demonstrates the correctness of the path drawn by the Portuguese Government to promote economic recovery".

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