Portugal Seeks Eligibility for ECB’s Bond-Buying Program
Portugal won’t need a new aid plan and wants to be eligible for the European Central Bank’s bond-buying program, its Secretary of State for Finance said.
“Portugal is regaining full market access and full market access will guarantee the eligibility for the OMT program,” Manuel Rodrigues said in a Bloomberg Television interview from New York yesterday. “We will not need other additional programs -- the fact that Portugal is eligible for the OMT will necessarily have a very positive impact on our credit risk profile,” he said. “We are working on ensuring that we are eligible for this program.”
ECB President Mario Draghi said on Sept. 6 that the central bank’s debt-purchase program, called Outright Monetary Transactions, may be considered for euro-area countries currently under bailout programs, such as Greece, Portugal and Ireland, when they regain bond-market access.
Last month, Portugal sold 10-year (GSPT10YR) debt for the first time in more than two years as yields on the country’s existing bonds were at the lowest since 2010 and a decline in interest rates worldwide led investors to seek higher-yielding assets. Portugal stopped selling bonds until this year after requesting a 78 billion-euro ($102 billion) bailout from the European Union and International Monetary Fund in April 2011 following a surge in debt levels and borrowing costs.
The difference in yield that investors demand to hold Portugal’s 10-year bonds instead of German bunds has narrowed to 4.16 percentage points from a euro-era record of 16 percentage points on Jan. 31, 2012. Portugal pays an average interest rate on its aid loans of 3.25 percent, Prime Minister Pedro Passos Coelho said on May 10.
Portugal is starting on the pre-financing for 2014 and has already been able to meet its requirements for this year, Finance Minister Vitor Gaspar said on May 7. The country’s bailout program ends in June 2014. Portugal’s debt is ranked below investment grade by Fitch Ratings, Moody’s Investors Services and Standard & Poor’s.
“Rating agencies tend to lag, and tend to revise their ratings slowly as they are very prudent,” Rodrigues said.
The government on March 15 announced less ambitious targets for narrowing its budget deficit as it forecast the economy will shrink twice as much as previously estimated this year. Coelho targets a deficit equivalent to 5.5 percent of gross domestic product in 2013, 4 percent in 2014 and below the EU’s 3 percent limit in 2015, when it aims for a 2.5 percent gap. It sees debt peaking at 123.7 percent of GDP in 2014.
The EU may consider giving Portugal more time to meet its deficit targets if economic conditions worsen, Jeroen Dijsselbloem, head of the group of euro-area finance ministers, said on May 27. Dijsselbloem said the government hasn’t yet requested another change of timetables and targets.
Economic growth has averaged less than 1 percent a year for the past decade, placing Portugal among Europe’s weakest performers. The government projects GDP will contract 2.3 percent this year before growing 0.6 percent next year. The jobless rate will climb to 18.2 percent in 2013 and 18.5 percent in 2014.
“The biggest concern we have in Portugal and in Europe has to do with unemployment, and in particular with youth unemployment,” Rodrigues said. The government has announced measures including tax incentives and more financing for small and medium-sized enterprises, he said.
The nation has injected a total of 5.6 billion euros in Portuguese banks that aren’t state-owned through the recapitalization facility that is available as part of its financial-aid program.
“Our banking institutions are now stronger than before,” Rodrigues said. “We don’t expect more recapitalizations will be needed.”
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