Moody's Investors Service on Tuesday downgraded Portugal's credit rating to junk status on the growing risk the country will need a second round of official financing and that it will not be able to meet deficit reduction and debt stabilization targets as set out in its loan agreements with the European Union and International Monetary Fund.

Moody's downgraded Portugal's long-term government bond ratings to Ba2 from Baa1 and assigned a negative outlook. The rating agency also downgraded the government's short-term debt rating to Not-Prime from Prime-2.

"Although Portugal's Ba2 rating indicates a much lower risk of restructuring than Greece's Caa1 rating, the EU's evolving approach to providing official support is an important factor for Portugal because it implies a rising risk that private sector participation could become a precondition for additional rounds of official lending to Portugal in the future as well," Moody's stated.

Meanwhile, Moody's acknowledged that its earlier concerns about political uncertainty within Portugal have been largely resolved.

The rating agency noted that the negative outlook reflects the implementation risks associated with the Portuguese government's ambitious plans.

On April 5, Moody's downgraded Portugal's long-term debt rating by one notch to Baa1 and placed it on review for further possible downgrade. It also downgraded the government's short-term debt rating to Prime-2 from Prime-1.

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