Fitch upgrades Portugal’s rating to A+ and says outlook is “stable”

Fitch has raised Portugal’s sovereign debt rating from “A” to “A+”, endorsing a “stable outlook.” The update was announced in a statement on the agency’s website (source in Portuguese), aligning with broader confidence from other rating bodies and investors in the nation under Portugal’s Agency for Investment and Foreign Trade (AICEP). The government confirmed that “all financial ratings agencies” assign Portugal an “A” rating.

Previously, Standard & Poor’s (S&P) ((source in Portuguese)) issued an unsolicited sovereign credit rating for Portugal of “A+/A‑1” for long‑ and short‑term foreign and local‑currency obligations, while maintaining a positive outlook. Additionally, Morningstar DBRS affirmed in July 2025 ((source in Portuguese)) that the Republic of Portugal holds an “A” (high) rating, accompanied by a “stable outlook.”

Fitch attributes the upgrade to the strengthening of Portugal’s public finances, particularly the projected reduction in debt and more robust economic growth than seen in comparable markets, underpinned by a pronounced political commitment to fiscal prudence.

“The improvement signals a solid foundation: the trajectory of falling public debt and rising budget balances exceeds that of peers, reinforced by resolute fiscal discipline,” Fitch explains.

The agency emphasizes that Portugal’s rating benefits from governance indicators above the median for “A”‑tier nations, together with institutional strength conferred by EU and euro area membership. Conversely, persistently high levels of accumulated public and external debt continue to merit attention.

Policy conduct, consistently better‑than‑expected budget results, and sustained current‑account surpluses have bolstered economic resilience against external shocks.

“Given the residual gap, public debt is projected to decline from 89.7 % of GDP in 2025 to 87.0 % in 2026 and further to 82.9 % in 2028, sustained by primary surpluses and modest nominal growth. Even under these scenarios, the ratio remains above the median forecast for “A”‑rated entities at roughly 59.5 % of GDP.”

Minister of State for Finance Joaquim Miranda Sarmento noted that this progress stems from collective effort by households and businesses, underscoring the necessity of continuing the debt‑reduction agenda uninterrupted. He criticized lingering bureaucratic obstacles that stifle companies and citizens, hinder private investment—especially foreign direct investment—and warn such repression could severely dampen GDP potential.

On X, the finance minister hailed the development as “excellent news for Portugal, restoring an A+ rating for the first time since March 2011.”

The President commented that this decision marks significant external validation of Portuguese performance, attributed to steady medium‑ and long‑term improvements driven by populist perseverance and responsible governance across administrations. An improved rating would lower financing costs for the state, enterprises, and families, foster investment and job creation, and channel public resources toward pressing societal needs.

“Reflecting on 2026 in hindsight, this year is certain to emerge as a landmark economic headline for the nation,” added President Seguro.

Pressure on Public Finances Amid Higher Defence Spending

Fitch projects the budget surplus will narrow from 0.7 % of GDP in 2025 to as low as 0.1 % in 2026, influenced by emergency relief funds and post‑storm reconstruction expenditures, tax‑cut and housing initiatives outlined in the 2026 State Budget, substantial capital outlays linked to the loan component of the Recovery and Resilience Plan (RRP), and elevated public‑sector wage and pension commitments.

Counterbalancing forces include amplified social contributions stemming from continued labor demand and a sizeable dividend payout from Caixa Geral de Depósitos, according to the agency.

Forecasts for 2027 and 2028 anticipate an average deficit close to 0.4 % of GDP. Fitch expects demographic ageing and waning migration to elevate spending pressures on social contributions, though it observes that the Social Security Financial Stabilisation Fund—with assets equivalent to 13.9 % of GDP by the end of 2025—provides meaningful buffering capacity.

The escalating cost of housing represents another challenge; rapid price surges have not yet triggered acute short‑term macro‑financial instability but heighten property‑market fragility and erode affordability. In the first quarter of 2026, residential house prices were approximately 99 % higher than in Q4 2019, contrasting sharply with only 31 % above the Euro‑area level in that quarter.

Scarce housing supplies coupled with robust demand—amplified by immigration trends—point to structural market imbalances, implying limited likelihood of a swift correction in the near term. Fitch contends a robust banking sector should help contain financial risks associated with property markets and manage growing household debt burdens.

NATO’s strategic goal of allocating 5 % of GDP to defence spending by 2035 is expected to impose medium‑term pressure on public finances, though the agency maintains that Fitch’s reputation for stable fiscal policy across successive government cycles mitigates risks stemming from heightened political unpredictability.

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