Hungary and Portugal Downgraded to Junk Status

By: EW News Desk Team   Date: 25 November 2011

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25 November 2011

Credit rating agency, Fitch, yesterday downgraded Portugal to junk status because of its “large fiscal imbalances, high indebtedness across all sectors and adverse macroeconomic outlook,” adding that it could be cut again.

Portugal yesterday suffered a double blow after the downgrade, just as a nationwide strike closed all public services due to growing frustrations over austerity measures that are pushing the country further into recession.

Fitch, which matched Moody's Investors Service's move in July to place Portugal in junk territory, lowered its rating one notch, to BB+ from BBB-, and warned further downgrades were possible as a recession in the country will increase challenges for the government to comply with its austerity plans.

Related: Dismal German Bond Auction Worries Investors

The country’s large fiscal imbalances, high indebtedness across all sectors and adverse macroeconomic outlook mean the sovereign’s credit profile is no longer consistent with an investment-grade rating, Fitch said.

Fitch also added that the fiscal strain on Portugal would play a significant role in the contraction of Portugal’s GDP in 2012, which is expected to decline by 3 percent.

Related: Portugal GDP, Debt, and other Economic Statistics

"The recession makes the government's deficit-reduction plan much more challenging and will negatively impact bank asset quality," Fitch said. "However, Fitch judges the government's commitment to the program to be strong."

Similarly, Hungary lost its investment-grade rating at Moody’s Investors Service after 15 years as the country sought help from the IMF.

Related: Hungary placed under negative credit rating watch

Related: IMF steps in with new liquidity for Europe

“The first driver of today’s downgrade is the uncertainty surrounding the Hungarian government’s ability to meet its targets on fiscal consolidation and public sector debt reduction,” Moody’s said in its statement. “Hungary’s recent requests for assistance from the IMF and the EU illustrate the funding challenges facing the country.”

Hungary was the first EU member to obtain an IMF-led bailout in 2008 and is current the most indebted eastern member in the European Union.

Related: Hungary GDP, Debt, and other Economic Statistics

Related: France's credit rating under scrutiny, debt targets to be reassessed

Related Story: Rating de-stabilize shaky world political economy


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