Portugal's rating outlook was raised by Standard & Poor's on Thursday, as the nation is likely to get extended support from its European lenders.
The rating agency affirmed Portugal's 'BB' long-term rating on Thursday, while raising the outlook to stable from negative.
According to S&P's assessment, Portugal's public sector refinancing risks will decrease when European leaders lengthen the maturity profile of their loans to the nation. The government is negotiating with its international lenders for an additional year to meet the deficit target.
"We also expect the "Troika" to adjust Portugal's fiscal consolidation path to allow for weaker-than-previously-assumed economic performance," it said. This will make the consolidation process more sustainable.
Due to high uncertainty affecting Portugal's key trading partners, the economy is forecast to shrink 1.5 percent this year, before returning to modest growth in 2014 and 2015.
The general government deficit is seen at around 5 percent of GDP this year and net government debt to peak at nearly 120 percent of GDP in the middle of this decade.
Although extending the lending maturities of bailout funding by the European Financial Stability Facility and the European Financial Stabilisation Mechanism will not lower the upfront general government debt/GDP burden, S&P is of the view that it should reduce the net present value of Portugal's debt.
Nonetheless, S&P sees significant risks to social contract, as the government continues to implement its EUR 4 billion program of expenditure cuts. The agency also warned that it will lower the ratings if Portugal's political commitment to the current structural adjustment diminishes.
by RTT Staff Writer
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