London, 08 November 2013 -- Moody's Investors Service, ("Moody's") has
today changed the outlook on the Ba3 government bond rating of Portugal
to stable from negative. Concurrently, Moody's has affirmed
Portugal's Ba3 rating.
The key drivers of the outlook change are the following:
(1) The improving trend in Portugal's fiscal position and the government's
commitment to fiscal consolidation, as confirmed in the recently
presented 2014 budget. Moody's expects that the general government
debt ratio will start to decline, albeit slowly, from an elevated
level of close to 129% of GDP (2013F) from 2014 onwards.
(2) The slowly improving economic outlook, both in the short and
medium term. Recent data releases indicate a stabilization of the
economy, with exports continuing to grow and the unemployment rate
declining from its very high level. The broad structural reforms
that the Portuguese authorities have undertaken in the context of the
Troika support programme should support the country's economic growth
in the medium term.
(3) The reduced risk of a debt restructuring given the marked improvement
in Portugal's liquidity position and its likely access to official creditor
support beyond the end of the current programme in June 2014. More
specifically, Moody's expects that Portugal would be able
to obtain a credit line from the European Stability Mechanism (ESM) to
support its market access if required.
RATIONALE FOR OUTLOOK CHANGE
--- PROGRESS IN REDUCING BUDGET DEFICIT AND STABILISING
GENERAL GOVERNMENT DEBT
The first driver behind Moody's change in Portugal's rating outlook is
the government's progress in restoring its financial solvency,
as reflected by its ongoing fiscal consolidation. The government's
recently presented 2014 budget envisages a reduction in the general government
deficit to 4% of GDP, in line with the country's commitment
to its international creditors. Based on the government's
budget execution record up until September, this year's budget
target (deficit of 5.5% of GDP under the Troika support
programme definition, 5.9% of GDP according to Eurostat's
definition) is also likely to be within reach.
Portugal's significant fiscal effort under its external support
programme has led to a near-halving of the budget deficit since
2009. Moreover, the primary balance is likely to record a
surplus in 2014 for the first time since 1997. As a result,
Moody's expects that the general government debt-to-GDP
ratio will start to decline next year for the first time since 2007.
--- MORE POSITIVE GROWTH PROSPECTS THAN PREVIOUSLY
EXPECTED
Moody's decision to change Portugal's rating outlook to stable
is also informed by the signs of stabilization in the Portuguese economy
after nearly three years of recession. The rating agency expects
moderate but positive GDP growth of 0.7% in 2014.
Unemployment has also started to decline over the past few months and
stood at 16.3% in September 2013, down from a peak
of 17.7% in January 2013. Moreover, the external
sector continues to perform well, with goods and services exports
increasing by 4% year-on-year from January to August.
The current account has moved into surplus, which Moody's
expects to increase further to 1% of GDP in 2014. An important
part of the country's success lies in the exploitation of export
markets outside the EU. That being said, Portugal is also
expected to benefit from the recovery in Spain, its key trading
partner, and the euro area as a whole. Over the medium term,
the broad structural reforms that the Portuguese authorities have been
implementing in the context of the support programme, are likely
to have a positive impact on economic growth, although this is difficult
to quantify at this stage.
--- STRENGTHENED LIQUIDITY POSITION AND CONTINUED
SUPPORT FROM PORTUGAL'S OFFICIAL CREDITORS REDUCE RISK OF A DEBT
RESTRUCTURING
The third driver is Portugal's improved liquidity position and access
to private sector funding, which also partially reduces the country's
risk of contagion from negative events elsewhere in the euro area.
The government's liquidity position has been boosted by the successful
issuance of medium- and long-term debt this year as well
as by continuing disbursements under the EU/IMF programme.
While Portugal's borrowing requirements will be relatively large
in 2014 and even more so in 2015, Moody's expects the government's
market access to be supported by the availability of further official
funding, if needed. In fact, the Troika of international
lenders (EU, IMF and ECB) has repeatedly stressed that it would
continue to provide financial support as long as Portugal continues to
meet the targets under its adjustment programme.
Moody's also notes that the extension earlier in 2013 of maturities
on EFSF and EFSM loans by seven years has significantly improved Portugal's
maturity profile over the coming years and is a further indication of
external support. In light of this, Moody's considers
the risk of a restructuring of private-sector debt to have receded.
WHAT COULD MOVE THE RATING UP/DOWN
Upward pressure would develop on Portugal's sovereign ratings if the government
was able to regain full access to private capital markets, with
or without an official backstop, and if the government was to continue
to meet its fiscal consolidation targets such that its very high government
debt ratio would clearly indicate a declining trend. Conversely,
downward pressure would develop on Portugal's government rating and/or
rating outlook if the country's fiscal-consolidation process was
to slow down significantly and led to an increase in its debt.
GDP per capita (PPP basis, US$): 23,047 (2012
Actual) (also known as Per Capita Income)
Real GDP growth (% change): -3.2% (2012
Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.9%
(2012 Actual)
Gen. Gov. Financial Balance/GDP: -6.4%
(2012 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -2% (2012 Actual) (also
known as External Balance)
External debt/GDP: [not available]
Level of economic development: Moderate level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 05 November 2013, a rating committee was called to discuss the
rating of the Portugal, Government of. The main points raised
during the discussion were: The issuer's economic fundamentals,
including its economic strength, have not materially changed.
The issuer's institutional strength/ framework, have not materially
changed. The issuer's fiscal or financial strength, including
its debt profile, has improved somewhat. The issuer has become
somewhat less susceptible to event risks. Other views raised included:
The issuer's governance and/or management, have not materially changed.
The systemic risk in which the issuer operates has not materially changed.
The principal methodology used in this rating was Sovereign Bond Ratings
published in September 2013. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Kathrin Muehlbronner
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Bart Jan Sebastian Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's changes outlook on Portugal's Ba3 rating to stable from negative