Portugal regaining an investment-grade credit rating would be important to widen the pool of investors who purchase the country’s debt, Finance Minister Maria Luis Albuquerque said.
Even as Portugal is selling longer-maturity debt and easing debt repayments due in the next three years after exiting a bailout and benefiting from lower borrowing costs, some investors are barred from holding debt deemed by ratings companies to be risker.
“Many investors, particularly institutional investors are constrained, so moving to investment grade by one of the three biggest rating agencies would open this pool of investors and would be very positive,” Albuquerque told an event at Bloomberg in London on Tuesday. She said there are investors who are trying to lower their restrictions so they can invest in non-investment grade securities.
Portugal’s credit rating remains below investment grade at Fitch Ratings, Moody’s Investors Service and Standard & Poor’s, while Moody’s is scheduled to review the country’s rating on Friday. Portugal’s 10-year bond yield was 2.24 percent at 1:25 p.m. London time after reaching 1.509 percent on March 12, the lowest since Bloomberg began collecting data in 1997. The yield rose to more than 18 percent in 2012.
The Portuguese government last month raised its growth forecast for 2015 and said it sees the economy accelerating in the following two years. Gross domestic product will expand 1.6 percent this year, more than a previous estimate of 1.5 percent growth, 2 percent in 2016 and 2.4 percent annually in the next three years. The economy grew 0.9 percent in 2014, after contracting in the previous three years.
Albuquerque said the economy is more robust and has been able to address most of the internal and external imbalances but needs to continue structural reforms and be able to attract foreign investment.
“Given the shortage of capital in our economy, the best hope for development in the future lies on attracting foreign investment to all sectors of the economy,” she said. The country needs a “stable environment, economically and politically.”
Portugal will hold elections on a date to be set between Sept. 14 and Oct. 14. Portuguese Prime Minister Pedro Passos Coelho, leader of the ruling Social Democrats, and Vice Premier Paulo Portas, leader of junior coalition party CDS, said on April 25 they were proposing keeping the coalition for the next election.
Portugal, which received a bailout from the European Union and the International Monetary Fund in 2011, followed Ireland last year when it exited the aid plan without the safety net of a precautionary credit line. The government this year made an early repayment of part of its IMF loan after borrowing costs fell and the European Central Bank announced a bond-buying plan.
Albuquerque sees Portugal’s fiscal adjustment “hopefully” lasting this time around as rules are tighter now, while not being able to resort to devaluation made it perceivably more difficult.
“We are being monitored more closely, the accumulated imbalances leave less room for doing the wrong thing, so the markets would likely signal earlier than they did before,” Albuquerque said. “I think the Portuguese people will remember for a long time how difficult the adjustment was.”