WASHINGTON (awp/afp) – Ratings agency Moody’s raised Portugal’s rating by two notches on Friday, now to A3 from Baa2 previously, and welcomed “economic and tax reforms,” but warned of political risks, following the resignation of Socialist Prime Minister António. Costa.
Moody’s gave this rating a stable outlook, compared to the previously positive one, which indicates that it does not expect another increase at this stage.
Moody’s noted “the continuing positive effects on credit in the medium term of a series of economic and financial reforms, the reduction of private sector debt, and the continued strengthening of the banking sector.”
“Portugal’s medium-term prospects are supported by significant private and public investments as well as the implementation of new structural reforms,” linked to the European recovery plan from which the country benefits.
Another advantage is that “strong growth and broadly balanced budgets mean that the debt burden will continue to decline at one of the fastest rates among advanced economies.”
On the other hand, the rating agency is concerned about the political situation, after the sudden resignation of Antonio Costa last November 7, against the backdrop of his involvement in an investigation into corruption and influence-peddling cases that particularly targeted the head of his office. Infrastructure, João Galamba.
Prosecutors’ suspicions focus on investment projects including lithium mining in northern Portugal, green hydrogen production, and the construction of a massive data center near the port of Sines on the southwest coast.
Moody’s believes that “Portuguese institutions (will) enable the country to solve this problem effectively”, but warns that this may “slow down progress in terms of investment and reforms linked to Portugal’s European recovery plan”.
Moreover, Portugal is highly vulnerable to another risk: climate change, the agency adds. This may have a greater negative impact on growth and financial indicators than Moody’s currently assumes.