Credit Rating of Portugal down to Junk Status

The credit rating of Portugal has been downgraded by one more level by the Ratings agency, Fitch, thereby bringing it down to junk status. The present rating is down from BBB+ to BB+, thereby the negative outlook of the country continues. Fitch, making a statement, has not ruled out more downgrades as the government faces critical challenges in complying with austerity plans. The country is facing high fiscal imbalance with growing debts across all the sectors and this negative outlook has made its credit profile go down even further. Contraction of the Portuguese economy by approximately 3% is expected in 2012 as a result of the continuing debt crisis in the euro-zone.

The recession in the zonal market has made has made it even more critical for the government for implementing its plans for reduction of deficits and this would also result in a negative impact on the asset quality of the banks, reported Fitch. However, Fitch has judged the commitment of the government as very strong towards implementation of the program for deficit reduction.

The banking system has also come under severe risks due to this prevailing situation, as they have been lending to one biggest debtor in the European private sector and remained highly dependent on their wholesale financing (the access to the same has however been closed off). This recent downgrade follows in the same lines as the downgrade done by Moody in July, which was again to the junk status. It has been seen that Standard and Poor’s, however, have not downgraded Portugal’s investment rating in the month of October.

A general strike has also taken place recently in the country, the effect of which stranded flights and even brought to a halt Lisbon’s subway service as the people in Portugal took to the streets to protest against the strong austerity measures that the government had implemented with the hope of receiving international help to overcome the financial crisis.

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