Moody's upgraded Portugal's sovereign rating by one notch to Ba1, and stable outlook on Friday evening following market close. Portugal is close to regaining investment grade status with only one notch missing from Moody's and Fitch, while S&P is still two notches below investment grade level.
The rating upgrade is based on: " 1) Moody's expectation that fiscal consolidation will remain on track despite unfavourable rulings by Portugal's Constitutional Court. This should support a gradual reduction in the very high public debt burden in the coming years. In addition, Moody's does not expect that the current uncertainties surrounding Banco Espirito Santo will have a material impact on the government's balance sheet. " and " 2) The government's comfortable liquidity position, with regained access to the public debt markets and sizeable cash buffers. Moreover, Portugal concluded its three-year EU/IMF support programme in June. ", see full Moody's review here .
We continue to expect that Portugal will be upgraded to investment grade later this year. Portugal is in many ways following in the footsteps of Ireland with a clean exit, a high cash balance of around EUR20bn, an elimination of the current account deficit, a fiscal improvement on track, a government debt that is set to decline over the coming years and a strong commitment from political leaders. Like Ireland, we expect Portugal to be able to harvest the efforts in the form of further rating upgrades later this year.
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