Portugal’s Socialist government says there is no justification for downgrading the country’s credit rating because of concerns over public finances.
“It would not be reasonable,” Manuel Pinho, the economy minister, told the Financial Times.
He was responding to last week’s warning from Standard and Poor’s, the credit agency, that Portugal was at risk of a possible downgrade due to a “heavy debt burden” and “persistently low growth”.
“The situation in Portugal is in no way the same as in other countries,” the minister said, alluding to Spain and Ireland, which received similar warnings from S&P, and Greece, which had its credit rating cut last week.
S&P said Portugal faced “increasingly difficult challenges” to improve competitiveness, adding that government attempts at reform had “proven insufficient”.
Mr Pinho responded with five reasons why he believed Portugal’s long-term AA- credit rating should not be downgraded.
He said the government had succeeded in cutting the budget deficit from 6.5 per cent to 2.2 per cent of gross domestic product in “just four years”. The social security system had undergone sweeping reform and there had been no real estate boom in Portugal.
He also pointed to a 22 per cent increase in exports over the past three years and said lower oil prices and big investments in renewable energy would reduce the current account deficit, currently the equivalent of about 9 per cent of GDP, by 2.5 percentage points.
Despite confidence in Portugal’s credit rating, however, the government was forced this weekend to downgrade its economic forecasts for 2009 in response to a “worsening external environment that cannot be ignored”.
Announcing supplementary budget measures, Fernando Teixeira dos Santos, finance minister, projected a 0.8 per cent slide in GDP growth this year and a rise in the unemployment rate to 8.5 per cent.
This compares with forecasts made in October of -0.3 per cent and 7.7 per cent respectively.
He said the budget deficit would rise to 3.9 per cent of GDP. The projected increase reflects a relaxation in the eurozone’s rules on fiscal discipline, the stability and growth pact, under which governments have been required to keep the deficit below 3 per cent of GDP.
After three years of painful austerity measures that succeeded in bringing a soaring budget deficit under control, Portugal had initially agreed with the European Commission on a 2009 deficit of only 1.5 per cent of GDP.