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Moody’s Investors Service (“Moody’s”) has today upgraded the Government of Portugal’s long-term foreign- and local-currency issuer and senior unsecured ratings to Baa2 from Baa3. Concurrently, Moody’s has also upgraded the country’s senior unsecured medium-term local-currency note (MTN) programme ratings to (P)Baa2 from (P)Baa3 and has upgraded the foreign-currency commercial paper rating to P-2 from P-3 and the local-currency other short-term rating to (P)P-2 from (P)P-3.
The outlook has been changed to stable from positive.
The key drivers for today’s rating action to upgrade Portugal’s ratings to Baa2 are:
1. Moody’s expectation that Portugal will see improvements in its longer-term growth prospects due to utilization of NextGen EU funds and implementation of structural reforms.
2. Moody’s confidence that Portugal’s debt burden will decline in the coming years due to stronger economic growth and improved effectiveness of fiscal policymaking. This rating driver is considered to be a governance factor under Moody’s ESG framework.
The stable outlook balances Portugal’s strong institutions and governance, a relatively diversified economy and elevated wealth levels compared to Baa2 peers, against persistent macroeconomic imbalances which include high private and public sector indebtedness and a negative international investment position as well as persistent weaknesses in the banking sector.
In a related rating action, Moody’s has also upgraded Parpublica-Participacoes Publicas (SGPS), SA’s local currency senior unsecured and senior unsecured MTN programme ratings to Baa2 and (P)Baa2 respectively (from Baa3 and (P)Baa3), and has changed the outlook to stable from positive. Moody’s rates SGPS at the same level as the Portuguese government to reflect (1) the company’s 100% government ownership; (2) the very close links between the company and the government; and (3) strong evidence of government financial support for the company, even though SGPS lacks an explicit guarantee from the government. De facto, Moody’s considers SGPS to be integrated into the government’s credit profile.
Concurrently, Moody’s also raised Portugal’s local- and foreign-currency country ceilings to Aa2 from Aa3, keeping the six-notch gap to the sovereign rating and reflecting Portugal’s de minimis exit risk from the euro area.