By Maria Armental
Moody's Investors Service Inc. on Friday upgraded Portugal's
credit rating by one notch to Ba1, citing the country's improved
fiscal condition and an expected, continued gradual reduction in
the country's very high public debt burden.
The outlook is stable, Moody's said. Ba1 is one notch below
investment-grade territory.
"Moody's believes, however, that Portugal's credit metrics
remain inconsistent with an investment-grade rating," the company
said, noting that the action concluded the review for upgrade it
had initiated on May 9.
Portugal's credit profile is now aligned with its Ba1-rated
European peers, including Slovenia and Croatia, though the latter
has a negative outlook.
Unlike those countries, however, Portugal's economy is growing
again, with the recovery broadening beyond exports, the ratings
firm said.
Portugal exited its EUR78 billion ($106.7 billion) three-year
bailout in May without asking for a precautionary credit line, and
ratings firms have praised the country's fiscal achievements. On
May 9, Moody's raised the country's rating one notch to Ba2, citing
improved economic and market conditions. On the same day, Standard
& Poor's Ratings Services revised Portugal's outlook to stable
from negative but kept the country's rating at double-B, also two
levels into junk.
On Friday, Moody's said the Portuguese government had shown a
strong commitment to reducing budget deficits despite adverse
rulings from the country's Constitutional Court. The ratings firm
also pointed to the country's "sizable fiscal cushion," noting that
last year's budget deficit was lower than originally budgeted. For
the current year, Moody's said it expects Portugal to achieve its
general government deficit target of 4% of gross domestic product,
which would yield the government's first primary surplus since
1997. Further, Moody's noted, Portugal's budget deficit would be
lower than that of higher-rated Spain and Ireland.
The rating agency said uncertainties surrounding Banco Espírito
Santo shouldn't affect the nation's credit profile.
Moody's and Standard & Poor's Ratings Services this month
downgraded the Portuguese bank's ratings amid a financial upheaval
involving the bank's holding company, Espírito Santo Financial
Group SA.
Portugal's public debt ratio stands around 120% of GDP, Moody's
said.
Write to Maria Armental at maria.armental@wsj.com