Moody’s upgrades Portugal’s rating two notches, despite political crisis

By Sergio Goncalves

LISBON (Reuters) – Moody’s upgraded Portugal’s long-term issuer rating two notches to A3 from Baa2, despite the political crisis triggered by the resignation of the country’s prime minister due to an investigation into alleged irregularities in his government.

The rating agency said in a statement released late on Friday that the upgrade reflected the “sustained positive credit effects over the medium term of a series of economic and fiscal reforms, private sector deleveraging and ongoing strengthening of the banking sector”.

The improved rating came despite Prime Minister Antonio Costa resigning last week over an investigation into alleged government corruption in multi-billion dollar lithium, “green” hydrogen and data center deals.

President Marcelo Rebelo de Sousa has called a snap election for March 10.

Moody’s said it appeared the country’s institutions were dealing with the crisis in an “effective and transparent manner”.

The agency warned, however, that a prolonged period of political uncertainty could negatively affect economic activity because of possible delays in private and public investments and could lead to wider deficits over the medium term than currently projected.

Finance Minister Fernando Medina said the upgrade showed that “the fundamentals of the economy are robust and confirms that Portugal has achieved a place among the group of countries with the highest credit quality and greatest international credibility”.

“It is essential to preserve this,” Medina added.

The 2024 budget, which is set to be approved by the Socialist parliamentary majority on Nov. 29, projects economic growth slowing down to 1.5% in 2024 from the 2.2% growth expected this year.

It also predicts a gross domestic product surplus of 0.2% next year, after a surplus of 0.8% in 2023, and sees the public debt ratio falling to 98.9% of GDP from 103%.

Moody’s said: “Robust growth and broadly balanced budgets mean that the debt burden will continue to fall at one of the fastest paces among advanced economies”.

It sees “significant private and public investments as well as the implementation of further structural reforms”, both linked to the country’s recovery plan.

(Reporting by Sergio Goncalves; Editing by David Latona and Clelia Oziel)