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2011 Bond Ratings: Upgrades, Downgrades


Rating Action: Downgrade to A- from A+

Rating Date: March 24

Fitch Ratings has downgraded Portugal's long term foreign and local currency issuer default ratings to A- from A+ and placed them on Rating Watch Negative.

"The downgrade reflects increased risks to policy implementation and fiscal financing in light of the Portuguese parliament's failure to pass fiscal consolidation measures and the resignation of the Prime Minister on 23 March," Douglas Renwick, Director in Fitch's Sovereign group, said in a note.

Fitch said last December when it downgraded Portugal to A+ with negative outlook that additional fiscal measures may be necessary to secure this year's ambitious deficit target of 4.6% of GDP (gross domestic product) in 2011.

"The failure to pass such measures yesterday and the ensuing policy uncertainty has weakened the credibility of Portugal's fiscal and structural reform program. It has therefore significantly increased the chances of Portugal requiring multilateral support in the near term, given its impaired ability to retain affordable market access," Renwick noted. The Fitch ratings definitions here are essentially the same as the ones provided in the Standard & Poor's key above.

Fitch thinks the risks to fiscal financing have increased since it last reviewed Portugal's rating on Dec. 23. Although the Portuguese government has raised EUR 12 billion in bonds and T-bills year-to-date and another EUR 1.3 billion in privately placed note, this compares with EUR 10.8 billion in T-bill redemptions year-to-date, a sizeable budget deficit and a further EUR 4.3 billion and EUR 4.9billion in bond redemptions in April and June, respectively, the Fitch analyst pointed out.

"Given the lack of improvement in financing conditions, Fitch no longer assumes Portugal can maintain affordable market access this year under its baseline scenario" Renwick added.

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