Moody’s downgrades Portugal debt


BBC News | Tuesday, 13 July 2010 | 09:13 GMT

International ratings agency Moody’s has downgraded Portugal’s sovereign debt rating, citing worsening public finances and weak growth prospects. It cut the rating by two notches from the maximum AA2 to A1. And it said Portugal might need further austerity measures, as well as those already announced. The euro fell against the dollar and sterling but market reaction was muted. Rival agency Standard & Poor’s already rates Portugal two grades lower at A-. The downgrade means that the rating agency is losing confidence in the Portuguese government’s ability to meet its financial obligations.

Tax rises

A sovereign debt downgrade tends to make it more expensive for a government to raise money on the international markets. However, the bonds are still some way from the “junk” status suffered by Greece. The latest available figures show Portugal’s total government debt stood at roughly 77% of GDP at the end of 2009. This is quite similar to the numbers in countries such as France and Germany, two of Europe’s economic powerhouses. However, Portugal’s economy is significantly smaller in absolute terms and is not expected to revive any time soon.    The European Union has been anxious to see more fragile European economies – including Portugal – impose tougher austerity measures. The Socialist government of Jose Socrates has announced a range of measures aimed at cutting the deficit to 7.3% this year and 4.6% in 2011. Top earners in the public sector, including politicians, will see a 5% pay cut. VAT will rise by 1% and there will be income tax rises for those earning more than 150,000 euros. By 2013, they will face a 45% tax rate. By 2013, military spending will have been cut by 40%. The government is also delaying the launch of two high-speed rail links – the Lisbon-Porto and Porto-Vigo routes.

Powered by Zoundry Raven

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s