Fitch’s latest assessment of Portugal’s financial health reflects continued progress in reducing the country’s public debt. The US financial rating agency upgraded Portugal’s rating from ‘BBB+’ to ‘A-‘ last year, and in a recent statement, it maintained a stable outlook. Fitch commended the government’s commitment to prudent fiscal policies, ongoing external deleveraging, and the reduction of debt vulnerabilities.
While Fitch sees a low risk of early elections in 2024, it noted the potential political uncertainty due to the government’s minority position, which could complicate the approval of the 2025 State Budget (OE2025). The agency acknowledged the possibility that the government may need to adopt twelfths-based budget management, which would require stricter fiscal discipline and potentially delay policy implementation.
Looking ahead, Fitch forecasts moderate economic growth for Portugal and a modest budget surplus of 0.2% of GDP in 2024, which is expected to lower the public debt ratio from 99.1% in 2023 to 95.8% by the end of 2024. The unemployment rate is projected to rise slightly to 6.6% this year but is expected to decline to 6.4% by 2026. Meanwhile, inflation is predicted to drop from 5.3% to 2.6% in 2024 and stabilize around 2% in the following two years.
Portugal’s next debt assessment will come from Moody’s on 15 November, marking the final rating evaluation of the year. Financial ratings play a crucial role in determining the cost of borrowing for countries and businesses, as they reflect credit risk.