Portugal keeps investment grade rating and access to EU help

Portugal kept its much-needed access to EU financial help Friday after an European Central Bank-approved credit agency maintained its rating of Portuguese debt at investment grade level.

Toronto-based DBRS announced it had kept Portugal's rating at "BBB" level, with a "stable" perspective.

"The rating reflects Portugal's eurozone membership, favourable public debt maturity structure, and reduced vulnerabilities, following a substantial correction of the current account deficit over the past few years," it said in a statement.

DBRS's decision was much anticipated as it is the only one of the four agencies accepted by the ECB to have maintained Portugal's rating in an investment grade category despite the country being hit hard by a debt crisis.

If the agency had downgraded its rating, the ECB would no longer have been allowed under its rules to purchase Portugese government bonds under its quantitative easing programme.

The ECB purchases of the bonds on the secondary markets help keep the interest rates down and ensures a market for new issues by governments, ensuring a key source of financing for governments remains open and affordable.

However, DBRS warned that "Portugal faces significant challenges, including elevated levels of public sector debt, ongoing fiscal pressures, low potential growth, and high corporate sector indebtedness," it warned.

Portugal received a massive international debt bailout in 2011 that saved it from defaulting when it could no longer issue debt at affordable rates, but in return the country had to introduce a string of austerity measures.

In four years, over 78,000 public sector jobs were cut -- more than 10 percent of the total -- alongside other steps the creditors said were needed to return the public finances to balance and put the economy back on track.

Portugal's public debt, though, is still forecast to hit 130 percent of GDP.

A left-wing government came to power last year, and in February lawmakers approved a 2016 budget that pledges to reverse unpopular austerity measures but is seen as high-risk by critics and investors, with Lisbon under EU pressure to stay on a disciplined path.

The budget restores civil servants' salaries and breathes new life into the welfare system.

However, in a bid to appease Brussels' demands, the government also announced a hike in taxes on fuel, vehicles and tobacco.

Source :AFP