(Repeat for additional subscribers)
Nov 18 (The following statement was released by the rating agency)
Portugal may be able to obtain a new credit line
from official creditors when its IMF-EU current programme ends in June 2014 as
the country's public debt dynamics are weak but close to stabilisation, Fitch
Ratings says. Moreover, Fitch believes that debt restructuring involving the
private sector or debt maturity extensions are unlikely as they would undermine
much of the fiscal progress Portugal has achieved so far.
Fitch forecasts Portuguese public debt to peak in 2014-15 at around 129% of GDP
and to decline gradually from 2016 onwards. In our base case scenario, public
debt is forecast to fall to 115% of GDP in 2022. This implies an average primary
surplus of 3% of GDP over 2016-22, which would represent a substantial
improvement on the average annual primary deficit of about 1.3% of GDP in the
decade prior to 2008.
Since the start of the programme in 2011, Fitch's assumption has been that
Portugal would need further official support when its current programme ends in
June 2014. Fitch believes an enhanced conditions credit line is more likely than
a precautionary credit line given stringent criteria for the latter.
Even if the IMF-EU programme were derailed by political shocks or by a harder
stance from Portugal's official creditors, Fitch does not believe private sector
involvement (PSI) is likely as it would, among other things, result in a higher
upfront outlay from official creditors, and keep Portugal out of debt markets
for much longer. Further, Portugal's debt dynamics are not as bad as Greece's
were when Greece undertook its PSI debt exchange in 2012.
Similarly, Fitch does not believe that Portugal will opt for a distressed debt
exchange involving an extension of debt maturities to fill a financing gap.
While a bond maturity extension may reduce immediate gross financing
requirements from the official sector and may be less economically disruptive
than PSI, it could hinder the country's efforts to regain market access.
Therefore, while a distressed debt exchange may seem a more attractive option
for creditor countries than PSI, it may not save official creditors gross outlay
over the long term as this default could keep Portugal out of the market for a
If Portugal was to negotiate a credit line in early 2014, it may underpin
investor confidence significantly and smooth a return to the market.
"Portugal: A challenging Debt Sustainability Path" and a full rating report on
Portugal are both available at www.fitchratings.com.
Link to Fitch Ratings' Report: Portugal: A Challenging Debt Sustainability Path