September 18, 2013 / 5:56 PM / 5 years ago

S&P piles pressure on Portugal with credit warning

LISBON/NEW YORK (Reuters) - Standard & Poor’s put Portugal under warning of a possible credit-rating downgrade on Wednesday while the country’s international lenders were in Lisbon discussing its bailout.

Graffiti depicting the angel of death, with the word "Portugal", is seen at a closed factory in Lisbon August 5, 2013. REUTERS/Rafael Marchante

Portugal’s government is lobbying the EU and IMF for more lenient bailout terms.

S&P said further constitutional court challenges to measures intended to cut spending and Portugal’s weak economy prompted it to put the country’s BB sovereign foreign currency credit rating on its CreditWatch negative list, meaning it will make a final decision within about 90 days.

“The CreditWatch placement reflects our view that there are rising risks to Portugal’s ambitious fiscal consolidation objectives and an increased likelihood of noncompliance with the current EU/IMF program,” the firm said in a statement.

“Risks include further challenges to fiscal and reform measures by Portugal’s Constitutional Court, weaker-than-expected economic performance, and a resurgence of political tension leading to delays in 2014 budget or program reviews,” S&P said.

In August, Portugal’s Constitutional Court dealt a blow to government efforts to cut spending and keep the bailout on track, rejecting a bill that would have effectively allowed the state to fire public sector workers.

Economists fear that other measures to make Portugal’s state finances more sustainable may still be challenged in court and compromise the goal of 4.7 billion euros ($6.3 billion) in spending cuts over the next few years set by the European Union and International Monetary Fund.

Earlier on Wednesday, yields jumped at a T-bill auction as investors became more doubtful about Portugal’s ability to emerge from its bailout smoothly and return to normal market financing.

Moody’s Investors Service rates Portugal one notch lower at Ba3 with a negative outlook while Fitch Ratings has Portugal one notch higher than S&P at BB-plus with a negative outlook.

S&P said there was a one-in-two chance that it could lower Portugal’s ratings in the next few months “if fiscal performance falls short, if reform plans falter, if official support waivers, or if increased political tensions lead to delays in 2014 budget or program reviews”.

($1 = 0.7492 euros)

Reporting By Daniel Bases, Pam Niimi, Luciana Lopez in New York; Daniel Alvarenga in Lisbon; Editing by Chris Reese/Ruth Pitchford

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