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Moody's sees Portugal's debt falling even in more unfavorable scenarios

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Moody's sees Portugal's debt falling even in more unfavorable scenarios

The reduction in indebtedness is one of the main reasons that led Moody's to put Portugal's rating with a positive outlook. Despite recognizing that the country's public debt level is one of the highest, the stress tests carried out by the financial rating agency to assess the potential impact of different scenarios on the economy anticipate that the level of debt will continue to fall, even in scenarios most adverse.

The consolidation achieved by Portugal in terms of the decline in public debt is one of the strengths of the Portuguese debt risk profile. For Sarah Carlson, the Moody's analyst responsible for the country, indebtedness remains a "significant challenge", but the debt should continue to fall, even in more adverse scenarios, such as a slowdown in the economy.

"The positive perspective (of the rating) is to recognize the level of debt reduction", explains the analyst, at the annual conference in Lisbon. In addition to improvements in budgetary consolidation, the analyst also points out the improvements achieved in the banking sector and the reduction in leverage.

But there are risks that concern the rating agency. Even recognizing that Portugal should be able to achieve a budget surplus in 2020 – estimates a surplus of 0.1% of GDP, Sarah Carlson says that there are still "fiscal pressures". Structural economic issues, such as an aging population, will imply an increase in spending, particularly in the health and hospital sector.

Moody’s assesses Portugal’s risk with a rating of Baa3, but maintains a positive outlook for the country, which means it will be able to better its assessment in the coming months.

. (tagsToTranslate) Moody

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