The outlook on Portugal’s government bond rating was changed to positive by Moody’s Investors Service on a continued decline in the government’s debt burden and sustained improvements in the banking sector.
The rating was affirmed and the outlook revised to positive from stable, Moody’s said in a statement on Friday. The New York-based credit rating company in October raised the rating to Baa3 as it restored the country to investment grade.
“The first driver of the positive outlook is the continued improvement in Portugal’s fiscal performance, which is now expected to improve the country’s key debt metrics at a faster pace than anticipated a year ago,” Moody’s said.
While the budget deficit has narrowed and borrowing costs have plunged since the euro crisis, Portugal’s debt burden as a percentage of gross domestic product remains the third-highest in the euro area behind Greece and Italy. The government aims to narrow the budget deficit to 0.2% of GDP this year, and sees the debt ratio falling to 118.6%.
“The affirmation of Portugal’s Baa3 rating is also driven by macroeconomic fundamentals that balance the relative wealth and diversification of the country’s economy against its modest growth prospects and structural economic constraints,” Moody’s said.
Tourism has boosted the Portuguese economy, which expanded for a fifth consecutive year in 2018. That’s helped the country’s minority Socialist government, which faces a general election in October, to lower the jobless rate and manage the budget deficit. The Bank of Portugal forecasts growth will slow to 1.7% this year. Portugal’s 10-year bond yield was at about 0.3% on Friday. It peaked at 18% in 2012 at the height of the euro region’s debt crisis.
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