Portugal's Rating on Chopping Block


Credit rating agency Moody’s (NSE:MCO) warned it might downgrade Portugal in the near term, citing “uncertainties” about the economic future of the country.

Analysts at Moody’s said Tuesday that Portugal’s “A1” long-term rating could be downgraded by “a notch or two,” which would still keep the country’s rating well above investment grade.

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But it’s the latest warning or downgrade that Moody’s and the other credit rating agencies have given to the countries of Portugal, Spain, Greece and Ireland over the last several months in the wake of the Europe-wide sovereign debt crisis.

In a statement, Moody’s said the agency has “ongoing concerns about [Portugal’s] economy ability to withstand” the necessary government austerity measures and, along with rising bond yields, “mean its outlook may no longer be consistent with an A1 rating.”

Moody’s said that the market conditions for debt-laden countries like Portugal has become increasingly skeptical, which may end up compounding the country’s financial condition.

“The markets have remained open to the Portuguese government," said Moody’s Anthony Thomas in a statement, "but it is having to pay an elevated price, which if sustained will increase substantially its debt service costs over time."

There are also issues with Portugal’s banking system, which is increasingly reliant on the European Central Bank for funds and may require more government aid if conditions do not improve. The agency currently has most of the Portuguese banks on review for a possible downgrade as well.

Moody’s previously downgraded Portugal’s credit rating in July from “Aa2” to “A1.”