Magazine article Global Finance

Making the Grade

Magazine article Global Finance

Making the Grade

Article excerpt

In April, Canadian rating agency DBRS confirmed a stable outlook for its BBB (low) credit rating for Portugal-the country's only investment-grade credit rating from a top global rating agency. Global Finance interviewed Adriana Alvarado, DBRS' lead analyst on Portugal, for her views on the nation's economy and prospects.

Global Finance: DBRS left Portugal's credit rating above investment grade in April. The decision was apparently based on a 2016 fiscal deficit that was lower than the target set by the European Commission. What are your expectations for 2017?

Adriana Alvarado: DBRS confirmed the Stable trend because we view risks to the rating as fairly balanced. There was an important improvement in the overall budget deficit in 2016, but the improvement in the structural deficit was more limited, and government debt remains high. The decline in the fiscal deficit last year was in part driven by temporary measures, which raised some concerns about the durability and quality of the consolidation. However, if public spending remains firmly contained, if the economy continues to grow steadily, and borrowing costs remain manageable, then the fiscal deficit should fall below 2% of GDP in 2017.

GF: Other credit rating agencies have rated Portugal below investment grade. What else-aside from the deficit- explains your decision?

Alvarado: Our BBB (low) rating for Portugal does not only incorporate the significant structural fiscal adjustment that Portugal achieved since 2011, but also reflects a small current account surplus, after a large correction of the external deficit. Eurozone membership and adherence to the EU economic governance framework, as well as a favorable debt maturity structure, are also important factors supporting the rating for Portugal.

GF: Portugal GDP posted positive growth for 13 consecutive quarters in 2016, a yearly rate of 1. …

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