LONDON — Ratings agency Moody’s downgraded Portugal’s government debt on Tuesday, citing growing risks the country will require a second rescue package because it cannot meet its debt reduction targets.
Moody’s Investors Service cut its rating by one notch to Baa2 from Baa1 and said in a report that it was increasingly unlikely that Portugal would be able to borrow money on capital markets in 2013, as planned.
As a result, it said the country would probably require more financial aid — on top of the C78 billion ($113 billion) bailout it received earlier this year — with private banks taking some losses.
Portugal has been shut out of bond markets for long-term loans since April, when its government collapsed, heightening investors concerns about its financial future.
Moody’s said the EU’s insistence on involving private sector holders of Greek debt in a second bailout for the country indicates the same would happen for Portugal.
The agency’s report is a blow to Portugal as it tries to distance itself from Greece, which has had to redouble painful austerity measures because it did not meet debt reduction targets.
Moody’s said Portugal faces huge challenges in reducing spending and tax evasion, achieving economic growth and supporting the banking system and did not exclude another rating cut.
“A further downgrade could be triggered by a significant slippage in the execution of the government’s fiscal consolidation program, a further downward revision of the country’s economic growth prospects or an increased risk that further support requires private sector participation,” Moody’s said in its report.