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Portugal has been warned it faces a credit rating downgrade unless the government takes firm measures to reduce its swollen budget deficit.
"If Portugal wants to avoid a downgrade, it is going to have to take meaningful, credible steps to get the deficit under control," said Anthony Thomas, a senior sovereign risk analyst with Moody's credit rating agency.
Portugal, where the budget deficit tripled to more than 8 per cent of gross domestic product last year, is among several European Union countries seeking to reassure international financial markets that they will not follow Greece into a debt crisis.
Portugal's budget for 2010, due to be debated in parliament this month, is seen as a crucial test for the recently re-elected socialist government to show a strong commitment to fiscal rigour. "This budget is very important for people like us," said another senior ratings analyst. "If the government puts forward ambitious measures to bring down the deficit, it will help take the pressure off the rating."
Moody's and Fitch both placed Portugal's sovereign debt rating on a negative outlook in the autumn, a measure that implies a probable downgrade within 12 to 18 months.
Lifting the warning or downgrading the rating, said Mr Thomas, would depend on what steps the government took to improve the outlook for fiscal consolidation and the underlying growth rate. The economy is estimated to have contracted by close to 2.5 per cent last year following zero growth in 2008.
In Greece, downgrades by three international ratings agencies in December pushed up spreads on government bonds and left the country facing the humbling risk of an EU bail-out.
However, ratings analysts said there was no short-term risk that Portugal would become the next Greece by suffering a debt crisis. "Both countries suffer from deteriorating government deficits and poor international competitiveness that will hit economic growth. But the situation in Greece is far worse than in Portugal," said Mr Thomas.
"If Portugal wants to avoid a downgrade, it is going to have to take meaningful, credible steps to get the deficit under control," said Anthony Thomas, a senior sovereign risk analyst with Moody's credit rating agency.
Portugal, where the budget deficit tripled to more than 8 per cent of gross domestic product last year, is among several European Union countries seeking to reassure international financial markets that they will not follow Greece into a debt crisis.
Portugal's budget for 2010, due to be debated in parliament this month, is seen as a crucial test for the recently re-elected socialist government to show a strong commitment to fiscal rigour. "This budget is very important for people like us," said another senior ratings analyst. "If the government puts forward ambitious measures to bring down the deficit, it will help take the pressure off the rating."
Moody's and Fitch both placed Portugal's sovereign debt rating on a negative outlook in the autumn, a measure that implies a probable downgrade within 12 to 18 months.
Lifting the warning or downgrading the rating, said Mr Thomas, would depend on what steps the government took to improve the outlook for fiscal consolidation and the underlying growth rate. The economy is estimated to have contracted by close to 2.5 per cent last year following zero growth in 2008.
In Greece, downgrades by three international ratings agencies in December pushed up spreads on government bonds and left the country facing the humbling risk of an EU bail-out.
However, ratings analysts said there was no short-term risk that Portugal would become the next Greece by suffering a debt crisis. "Both countries suffer from deteriorating government deficits and poor international competitiveness that will hit economic growth. But the situation in Greece is far worse than in Portugal," said Mr Thomas.
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