Standard & Poor’s has lowered Portugal’s long-term sovereign credit rating from A- to BBB but maintained its short-term credit ratings at A-2.
The move follows Fitch’s decision to downgrade the country’s foreign and local currency issuer default ratings after the Portuguese parliament failed to pass a new austerity package.
Portugal is currently struggling with high levels of government spending and borrowing in the wake of the credit crunch and the more recent eurozone debt crisis.
Standard & Poor’s says it downgraded Portugal because of the country’s failure to launch fresh austerity measures and the subsequent resignation of prime minister José Sócrates.
The rating agency says the political uncertainty may damage the confidence of the markets and increase the risk that Portugal will not be able to refinance its debt on favourable terms.
In addition, it says that the ratings for both long-term sovereign credit and short-term credit will remain on its CreditWatch with negative implications. They were placed on the watchlist on November 30 last year.
According to S&P, the rating could decline further if the new structure of the European Stability Mechanism bailout fund hits the country’s existing lenders.