Moody’s Investor Services (MCO) downgraded the sovereign debt of Portugal on Tuesday, citing the country’s worsening public finances and weak growth prospects.
The rating agency said it expected the Portuguese government’s debt trend to continue to rise for “at least another two to three years,” with the ratio of debt-to-GDP eventually approaching 90% and 210%, respectively.
“The Portuguese government’s debt–to-GDP and debt-to-revenues ratios have risen rapidly over the last two years,” said in a statement Anthony Thomas, a Moody’s senior analyst in the sovereign risk group. “This deterioration came about due to the government’s anti-crisis measures and the operation of the budget’s automatic stabilizers, such as higher unemployment benefits, when the economy went into recession.”
Portugal has adopted austerity measures designed to cut its deficit to 7.3% of GDP this year and 4.6% next year. Thomas however, said it was not yet clear whether the reforms initiated by the government will boost growth enough to reverse the country’s deteriorating debt trends.
Moody’s cut Portugal’s debt rating by two notches from “Aa2” to “A1,” which is still investment grade. The decision by the rating agency follows similar action by Standard & Poor’s in April.