Portugal’s financial landscape recently saw a significant endorsement when Fitch Ratings elevated the nation’s sovereign debt rating from “A” to “A+”, accompanying it with a “stable outlook.” This move aligns with a broader trend of increased confidence from leading ratings agencies and investors, a sentiment echoed by the Portuguese Agency for Investment and Foreign Trade (AICEP). The Portuguese government now notes that all major financial ratings agencies have assigned the country an “A” rating, marking a collective recognition of its economic trajectory.
This upgrade by Fitch is rooted in the discernible strengthening of Portugal’s public finances. The agency specifically cited a projected reduction in the country’s debt burden and budget balances that stand notably stronger than those of comparable nations. Underlying this positive assessment is what Fitch identifies as a “strong political commitment to fiscal prudence,” suggesting a consistent policy direction regardless of changes in government. This commitment, the agency observed, has fostered resilience within the Portuguese economy, enhancing its capacity to absorb economic shocks, a testament to repeatedly better-than-expected budget performance and persistent current-account surpluses.
Beyond fiscal discipline, Portugal’s governance indicators have also played a role, consistently placing above the median for countries within the “A” rating category. Its institutional strengths, intrinsically linked to its membership in the European Union and the euro area, further bolster this position. However, these positive elements are weighed against persistent challenges, notably the still-elevated levels of accumulated public and external debt, which remain a key consideration in the overall assessment.
Looking ahead, Fitch projects a continued decline in public debt, forecasting a drop from 89.7% of GDP in 2025 to 87.0% in 2026, and further to 82.9% by 2028. This anticipated reduction is predicated on the maintenance of primary surpluses and moderate nominal economic growth. Despite this downward trend, the ratio is expected to stay above the forecast median of 59.5% of GDP for similarly rated “A” countries, indicating that while progress is being made, the journey toward debt normalization is ongoing.
The Minister of State and Finance, Joaquim Miranda Sarmento, acknowledged these developments, attributing the fall in the debt-to-GDP ratio to the collective efforts of families and businesses. Sarmento emphasized the necessity of sustaining this momentum, advocating for a significant reduction in bureaucracy to stimulate private and foreign direct investment, which he believes will profoundly impact the country’s potential GDP. On social media, the finance minister heralded the “excellent news for Portugal,” noting it marks the first time since March 2011 that the country has regained an A+ rating. This sentiment was echoed by the President of the Republic, António José Seguro, who welcomed the decision as “excellent news for the country and an important external recognition of Portugal’s performance,” crediting the sustained efforts of the Portuguese people and responsible governance across administrations.
While the outlook is largely positive, Fitch’s analysis also highlights potential fiscal pressures. The agency estimates a slight decrease in the budget surplus from 0.7% of GDP in 2025 to 0.1% in 2026. This dip is partly attributed to anticipated emergency support and reconstruction spending following storms, tax cuts, housing measures outlined in the 2026 State Budget, peak investment from the Recovery and Resilience Plan’s loan component, and increased outlays for wages and pensions. These expenditures are expected to be partially offset by higher social contributions linked to continued employment growth and a substantial dividend distribution from Caixa Geral de Depósitos.
Further out, Fitch forecasts an average deficit of approximately 0.4% of GDP for 2027 and 2028, largely due to demographic aging and lower migration, which are expected to increase spending and strain social contributions. The Social Security Financial Stabilisation Fund, holding assets equivalent to 13.9% of GDP by the end of 2025, is seen as providing a substantial safety margin against these pressures. The housing market also remains a point of attention; while rapid price increases have not yet translated into significant short-term macro-financial risks, they are exacerbating affordability pressures. Residential property prices in the first quarter of 2026 were nearly double their level from late 2019, far outpacing the euro area average. Low supply and strong demand, partly driven by immigration, suggest these are structural issues, though a robust banking sector is expected to contain financial risks associated with the property market and household debt. Furthermore, NATO’s target of 5% of GDP in defense spending by 2035 is expected to add medium-term pressure to public finances, yet Fitch believes Portugal’s consistent budgetary policy track record, stable across government transitions, mitigates these evolving risks.
