Moody's mulling downgrade of Portugal's rating

Moody's Investor Services put Portugal's long-term and short-term rating on review for a possible downgrade, citing uncertainties in the country's economic vitality.

There are several concerns about Portugal's ability to access capital markets at a sustainable price, Moody's said in a statement.

There are also concerns about the possible impact on the government's debt metrics of further support for the banking sector which may be needed for the banks to regain access to the private capital markets, the rating agency added.

Though Portugal's solvency is not in question, the likely fall in debt affordability over the medium term and the question if the economy can withstand fiscal consolidation and private sector deleveraging means it outlook cannot have an A1 rating, Anthony Thomas, Moody's lead analyst for Portugal, said.

Portugal's government will begin implementing a fiscal austerity program as its debt begins to shoot up.

The country will have to issue more than 10 billion euros in new debt to cover the redemptions of the previously issued treasury bills, the Wall Street Journal reported, citing Portuguese treasury data.

However, economic growth slowed down for the sixth consecutive month in October, according to an official report from the government.

Despite these conditions, the Portuguese Prime Minister Jose Socrates said debt will begin to fall in a couple of years and the country will not require a bailout like Ireland and Greece.

But investors continue to be worried that the country's low growth rate and reliance on foreign funding will make it harder for debt levels to be controlled.

The markets have remained open to the Portuguese government, adds Thomas, but it is having to pay an elevated price, which if sustained will increase substantially its debt service costs over time.

Moody's said it will continue to monitor the government's ongoing funding program to see if it remains able to access the capital markets and at what price.

Moody's review of Portugal's sovereign ratings will focus first on the economy's growth prospects, in particular the likelihood that any structural reforms undertaken in the labor and product markets will boost growth potential, the ratings agency said.

The rating might be downgraded a notch or two.

Earlier this month, Standard & Poor's Ratings Services also said it was considering a downgrade of Portugal's rating.