Today Moody’s Investors Service downgraded Portugal’s long-term government bond ratings to Ba2 from Baa1 and gave it a negative outlook rating as well. Portugal’s short-term debt rating was also lowered to (P) Not-Prime from (P) Prime-2. These downgrades concludes the nation’s review that was initiated back in early April.
The rationale behind the downgrade comes from the belief that the nation will require a second round of official financing just to get started on the path to returning to a private market, and the high likelihood that to do so, private sector creditor participation will be mandated as a pre-condition. Along with this is the concern that it will not be able to reach the deficit and debt reductions laid out as requirements for loans from the EU and IMF.
The downgrade is not the end for Portugal however. Depending on how the government responds and acts to solve their economic problems, Moody’s could either downgrade Portugal further, or restore its ratings to a higher level.