16 Mar 2011

Moody's downgrades Portugal's debt rating

8:45 pm on 16 March 2011

The international ratings agency Moody's has downgraded Portugal's sovereign debt rating, citing the country's poor growth prospects and its need to cut debt.

Burdened with debt, Portugal is struggling to avoid an international bailout similar to those of Greece and Ireland.

The government unveiled the latest in a series of austerity measures last Friday.

The plans, which included cuts to health and welfare budgets, were meant to reassure investors and fellow European Union members that the nation can meet its debt obligations without the need for outside help.

The measures have met with fierce opposition, however, to the point where the main opposition party has decided to formally oppose the plans. That could lead to political deadlock, bring down the minority government and force a general election.

Negative outlook as well

In downgrading Portugal's sovereign debt rating from A1 to A3, Moody's says the cost of market funding is "likely to remain high until the deficit has been reduced to a sustainable level and the prospects for economic growth have improved".

The downgrade will make it more expensive for Portugal to raise money on the international money markets.

Moody's has also given a negative outlook on the new rating, which means it could be downgraded even further, indicating that Moody's is unsure that the Portuguese government will be able to deliver on the new measures.

Standard and Poor's recently announced that it is also reviewing Portugal's debt rating.