EU policies key for Portugal rating outlook: Moody's

By @ibtimes on

Portugal's credit-rating outlook depends a great deal on whether euro zone officials will require private sector participation when extending new financing to debt-ridden countries in the region, Moody's said on Tuesday.

The ratings agency told Reuters in an interview there is a good chance it will revise the outlook on Portugal's rating to stable from negative. It downgraded the rating on Tuesday by four notches to Ba1, or two levels into junk territory.

Any future revision will depend, however, on whether European policymakers change their attitude in dealing with private-sector creditors, said Anthony Thomas, a Moody's analyst for Portugal.

We have noticed how the positioning of European policy makers has changed in recent months, Thomas said. They're aware that debt is being moved from the private sector to the public sector as a result of these support packages and that in an event of a restructuring, a large share of the costs would be born by public-sector creditors, he added.

By demanding private creditors take part in future financing deals for Greece, Portugal or other weaker euro zone countries, policymakers would discourage new private sector lending going forward, Thomas said.

That in itself reduces the likelihood that Portugal will be able to regain access to the market on sustainable terms.

Another possible positive development for Portugal's ratings would be evidence that Portugal is meeting or indeed exceeding its deficit reduction targets, he added.

Probably the most realistic thing is that we will change the outlook to negative from stable.

(Editing by Chizu Nomiyama and Dan Grebler)

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