(Adds comments, bond yields)
LISBON May 22 Portugal's finance ministry said
on Monday the European Commission's recommendation to end the
disciplinary process for its excessive budget deficit marks a
turning point and shows growing confidence in the economy by
Portugal reduced its budget deficit in 2016 to 2.0 percent
of gross domestic, down from 4.4 percent in 2015 and its lowest
since 1975, marking the country's first exit from a European
Union disciplinary process since 2009.
However, officials and business leaders said Portugal still
needs to cut its debt burden in order to regain its investment
grade rating lost in the aftermath of the 2011 debt crisis and
subsequent EU/IMF bailout. It exited the bailout in 2014.
"This decision is a turning point to the extent that it
expresses the evaluation of the commission that Portugal's
excessive budget deficit has been corrected in a sustainable and
lasting way," the ministry said in a statement.
"Confidence in the Portuguese economy is beginning to be
reflected by international institutions," it said.
The government was "fully committed" to keep implementing
ambitious reforms, the ministry said.
"The next determining step ... is to work together for a
sustainable improvement in growth and a debt reduction, so that
rating agencies can change their marks on the country," said
Nuno Amado, CEO of Portugal's largest listed bank BCP.
He said growth was picking up this year after a slowdown in
2016, but without a clear reduction in debt levels, a rating
improvement was unlikely.
Only one rating agency recognised by the European Central
Bank, Canada's DBRS, has an investment grade rating on
Portugal's debt, while the three major agencies - Moody's, Fitch
and Standard&Poor's - rate it one notch into "junk" territory.
As a result, Portugal's debt premiums are still among the
highest in Europe despite a recent fall that outperformed other
issuers. At about 130 percent of GDP, the country's debt is the
highest in the common currency area after Greece and Italy.
Portugal's 10-year bond yield fell to seven-month lows of
3.15 percent on Monday after the Europe Commission
Carlos Moedas, European commissioner for research, science
and innovation, who is Portuguese, praised progress in cutting
the deficit and said the commission's decision means Portugal
would be freer to define its policies and attract investment.
"But on the other hand, we remain a very indebted country
and we still have to reduce our debt," he said.
(Reporting by Axel Bugge, Daniel Alvarenga and Andrei Khalip;
Editing by Louise Ireland)