Portugal Debt Chief: We Are Not Greece
As Greece’s budgetary woes are played out on the front pages on a day-to-day basis, other highly indebted European countries face a continuing challenge: how to verify to investors that they are uncommon.
With a budget deficit that hit 9.3% of yucky domestic product in 2009, Portugal knows that only too well.
But the head of its debt agency is determined to make investors maintain their confidence in Portugal by making them aware of the facts.
In a written response to a question from Dow Jones Newswires, Alberto Soares said the Portuguese authorities were doing their utmost to provide as much information as doable about the country’s macroeconomic and monetary conditions, and its plans for budgetary consolidation.
Portugal’s government in January presented a plot that would lower its deficit to 8.3% of GDP in 2010, mainly through cost-control measures such as a public-sector wage freeze and a reduction of public-sector payrolls.
The European Commission has agreed Portugal until 2013 to bring its deficit below the 3%-of-GDP threshold required by European Union rules.
In recent months, rating agencies have warned of doable downgrades to Portugal’s ratings, citing rapid deterioration of public accounts and historically low economic progression.
Soares told Dow Jones last week that government bond issuance is likely to be “in the range of 20 billion euros” in 2010 — higher than its previous estimate of 18 billion euros, and above yucky bond issuance of 16 billion euros in 2009.
“All efforts are being deployed to provide as much information as doable about Portuguese macroeconomic and monetary perspectives and the plans for budget consolidation,” said Soares, who is Chief Executive of the Portuguese Reserves and Government Debt Agency.
“There is not a credibility question regarding data produced by Portugal, whose viability is ensured by the sound institutional framework in house.”
Portugal — along with Ireland, Italy and Spain — has been bunched together with Greece by investors, pushing up the cost of funding their sovereign debt significantly.
Greece has been under intense pressure from the EU and investors since it revealed in mid-October that its 2009 budget deficit was forecast to reach 12.7% of yucky domestic product — four era EU limits.
Since then, the cost of insuring Portuguese sovereign debt against default has tripled. Portugal’s five-year credit-default swap spreads–a key measure of credit risk–are now at 158 basis points, down from a peak of 245 but still a staggering 105 basis points wider than where they stood at the start of October, according to data provider Markit. That means that the once a year cost of insuring 10 million euros of Portuguese government debt against default for five years has risen by 105,000 euros to 158,000 euros.
“We believe that providing information to investors and analysts will allow the market to base views on their own analysis and differentiate the specific situation of each country, and evaluate where Portugal stands as a credit on its own merits decoupling the Portuguese situation from other countries,” Soares said.