President of the Republic Marcelo Rebelo de Sousa has been full of the “good news” from Fitch ratings agency today – telling journalists in Lisbon that it is time for European institutions to start recognising that “Portugal is taking steps” to reduce its budget deficit and consolidate the financial system.
In reality, Fitch’s “good news” has simply been to maintain Portugal’s junk rating – meaning that investment is still considered “highly speculative”.
While Marcelo made a valiant attempt to make this look positive, Observador website explains that the rating “makes it impossible for the Portuguese Treasury to free itself from the constant suffocation of few buyers for its debt other than Mario Draghi and the European Central Bank”.
Analysts have added that they think it is unlikely that Fitch will change its mind about Portugal’s rating before 2018.
The agency’s European director Federico Barriga Salazar told Observador: “What is important to us is long-term growth potential and debt sustainability”. Fitch needs to see “whether policies being applied are just one-offs (extraordinary effects), or whether they are sustainable. It is very easy to cut the deficit in an expressive way in one year – by reducing investment – but this is creating problems for the future. We see this a lot in emerging economies”.
Thus as this big cheese in the ratings game hedges its bets, President Marcelo is doing his best to make the most of the “news”, saying that “bit by bit” it shows Portugal is approaching a deficit of “around 2.3%, or even a little less”.
It is time for European institutions to see Portugal’s results for what they are, and recognise that the country is indeed moving forwards, he said.
