Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Portuguese Republic (BBB+/Stable; S-2/Stable) on 22 November 2021. 

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

The Portuguese Republic’s long-term BBB+/Stable ratings are underpinned by the following credit strengths: i) the authorities’ good record of prudent fiscal policy and structural reform including current account rebalancing and structural unemployment reduction; and ii) a resilient public debt structure. These factors increase the country’s resilience to economic shocks and allowed for a moderate countercyclical fiscal response to the current crisis. Challenges relate to: i) a modest growth potential despite a still significant wealth-gap with euro area peers; ii) high external debt; and iii) elevated public debt and implicit liabilities, including from adverse demographic trends impacting labour force and public spending.

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the next 12 to 18 months.

The rating/Outlook could be downgraded, individually or collectively, if: i) protracted fiscal deterioration or a fading commitment to fiscal consolidation would result in a weakened debt sustainability; ii) contingent liabilities materialise, notably weighing on the sovereign’s balance sheet; and/or ii) there is a fading commitment to or a reversal of structural reforms, leading to markedly lower GDP growth.

Conversely, the rating/Outlook could be upgraded if, individually or collectively, if Portugal’s: i) public finances improve, resulting in a steady reduction in public debt; and/or ii) continued implementation of growth-enhancing structural reforms raises the country’s growth potential and supports greater diversification into higher-value added activities.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 8 October 2021) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Jakob Suwalski, Director.

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