FINANCE

Moody's cuts Portugal's debt rating by two notches

Moody's, one of three leading international ratings agencies, has lowered Portugal's sovereign debt rating by two notches to A1, casting further doubt on the Portuguese government's ability to balance the country's worsening public finances.

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AFP - Moody's international ratings agency on Tuesday downgraded Portugal's sovereign debt rating two notches to A1, based on its worsening public finances and weak growth prospects.

Moody's said it expected the Portuguese government's debt trend to continue to deteriorate for "at least another two to three years," with the ratio of debt to gross domestic product eventually nearing 90 percent.

Portugal's government bonds previously had an AA2 rating.

The agency, which initiated a review for a possible downgrade on May 5, said it "remains concerned about the economy's medium-term growth potential."

"The Portuguese government's debt-to-GDP and debt-to-revenues ratios have risen rapidly over the past two years," said Moody's analyst Anthony Thomas.

"This deterioration came about due to the government's anti-crisis measures and the operation of the budget's automatic stabilisers, such as higher unemployment benefits, when the economy went into recession."

Thomas said it was not yet clear whether the labour market and other reforms initiated by the government will boost growth enough to reverse the country's deteriorating debt trends.

"This would imply that Portugal's government would remain relatively highly indebted for the foreseeable future," he said.

Another international ratings agency, Standard & Poor's, downgraded Portugal's credit rating in April owing to similar concerns about fiscal and economic weaknesses.

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