Portugal’s Rating Raised by S&P on Economic Recovery, Debt Path

Portugal’s government bond rating was raised by Standard & Poor’s, which cited the country’s economic recovery and declining debt ratio.

The company lifted the rating to BB+, or one level below investment grade, from BB, the New York-based company said. S&P also gave it a stable outlook. Portugal has been rated junk by S&P since January 2012.

“Portugal’s economic recovery and budgetary consolidation continue in line with our expectations, putting net government debt to gross domestic product on a declining path after 15 consecutive years of increases,” S&P said in a statement Friday. “We expect broad policy continuity, regardless of the outcome of Portugal’s upcoming general elections in October.”

Portugal has been taking advantage of low borrowing costs to sell longer-maturity bonds and ease debt repayments due in the next three years after exiting a bailout from the European Union and the International Monetary Fund in May 2014.

The government of Prime Minister Pedro Passos Coelho, which faces elections on Oct. 4, made early payments in March and June on part of its IMF loan after the European Central Bank announced a bond-buying plan and borrowing costs fell.

The government’s debt also ranks below investment grade from Moody’s Investors Service and Fitch Ratings.

Portugal’s 10-year bonds yield about 2.5 percent after exceeding 18 percent in January 2012. The extra yield investors demand to hold Portugal’s 10-year bonds instead of German bunds was at 1.84 percentage points Friday, compared with a peak spread above 16 percentage points in 2012.

The government in April raised its growth forecast for 2015 to 1.6 percent and said it sees the economy accelerating in the following two years. The economy grew 0.9 percent in 2014, after contracting in the previous three years. The government targets a budget deficit equivalent to 2.7 percent of GDP in 2015, below the EU’s 3 percent limit.

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