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Ratings agency adds to stormclouds gathering over Portugal

Canadian ratings agency DBRS has added to the financial stormclouds gathering over Portugal by “admitting” that it may cut its rating – the only one left that pegs Portugal’s investment level above the dreaded “rubbish” category.

The DBRS bombshell came in a week when IMF rumblings echoed those coming out of Brussels – that Portugal must adopt new measures of austerity if it is to reduce its debts.

And it has prompted former prime minister Pedro Passos Coelho to declare that the country would be forced to request a second bailout if DBRS really does pull the plug on its BBB status.

Jornal de Negócios explains that the loss of DBRS’ BBB rating would mean that the European Central Bank would no longer accept Portuguese debt as ‘collateral’.

Stripped of its ability to raise money by selling debt, the country would be well and truly ‘bankrupt’ – or, as Passos Coelho put it, the country would go backwards.

But the current government has countered the latest criticisms, saying it doubts the IMF’s figures, anyway.

AFP news agency called the finance ministry’s response last week “tetchy”.

What happens next may be defined on April 29, reports Jornal de Negócios – the date when DBRS’ rating comes up for revision.

Meantime, Expresso writes that the country’s central bank remains under fire, with a veritable “shower of lawsuits” being lodged by investors – some of them very large – who have come off worse in the latest ‘banking resolutions’, namely the Novo Banco senior bond dump, and the sale of Banif.

To make matters worse, business website Bloomberg has joined the throng, suggesting Portugal’s public debt “is going from bad to worse”.

In an article published this morning, market strategist Daniel Lenz is quoted as saying the situation has actually become worse “in the last few days”.

The problem is that Portuguese bonds lost 1.3% in the first three months of 2016 – compared with an average gain in the euro area of 3.3%.

Even Greece “managed to eek out a 0.4% return”, explains Bloomberg World Bond Indexes.

And Spain, with its desperate political situation, is also doing better.

Everything hinges on what may happen over the next month, while President of Portugal Marcelo Rebelo de Sousa will be doing everything he can behind the scenes to try and smoothe the troubled waters.

natasha.donn@algarveresident.com

Photo: Former prime minister Pedro Passos Coelho has declared Portugal would be forced to request a second bailout if DBRS’ rating is cut