On 5 July 2011, we downgraded Portugal’s long-term government bond ratings to Ba2 from Baa1 and assigned a negative outlook. Concurrently, we also downgraded the government's short-term debt rating to Not-Prime from Prime-2. This rating action concluded the review of Portugal’s ratings that we initiated on 5 April 2011.
The rating action was driven by two closely related considerations:
» The growing risk that Portugal will require a second round of official financing before it can return to the private market, particularly if the country were to suffer contagion from a disorderly Greek default, or merely from the growing likelihood of a default. Such contagion would meaningfully change the risks for investors that currently hold Portuguese bonds given the increasing possibility that private sector creditor participation will be required as a prerequisite for any further finance.
» The heightened concern that Portugal will not be able to fully achieve the deficit reduction and debt targets that are required to stabilise its debt position, as set out in its loan agreement with the European Union (EU) and International Monetary Fund (IMF).
This concern is driven by the formidable challenges the country is facing in reducing spending, increasing tax compliance and achieving economic growth (and addressing the related longer-term solvency concerns) and supporting the banking system.
The negative outlook on the rating reflects Moody’s view of the implementation risks associated with the government’s ambitious plans.
The purpose of this Special Comment is to provide further insight into our views and the analytical considerations that drove the decision to downgrade Portugal’s long-term government bond ratings to Ba2.
Por favor, nem toda a gente é estúpida. Ouvir Nicolau Santos.
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