Portugal's Credit Rating Soars: What This Means for the Economy

Portugal's Rating Upgrade

The financial rating agency DBRS has officially upgraded Portugal's credit rating to 'A' (high), moving up from a previous rating of 'A' with a stable outlook. This significant decision reflects the agency's belief in Portugal's strong fiscal performance and notable public debt reduction.

Key Reasons for the Upgrade

According to DBRS, the upgrade is primarily due to:

• A sharp decline in public debt, from 116.1% of GDP in 2019 to 97.9% in 2023, with expectations to fall below 90% in the next few years.
• The government's projection of a public debt ratio decrease to 95.9% of GDP in 2024, continuing to decline to 83.2% by 2028.
• Portugal's budgetary situation, which is noted to be among the strongest in the eurozone, including a budget surplus of 1.2% of GDP in 2023.

Other Notable Upgrades

DBRS also upgraded Portugal's short-term ratings to R-1 (mid) from R-1 (low), with trends for all ratings shifting from positive to stable. The stable outlook signifies that the risks to credit ratings are balanced, supported by Portugal's membership in the euro area and adherence to the EU economic governance framework.

Future Outlook and Challenges

Despite this positive news, DBRS cautioned that main vulnerabilities include:

• The high level of public and external debt.
• The relatively low economic growth potential, which could become more challenging if interest rates remain high.

The agency is the first to announce Portugal's rating upgrade this year, with other agencies such as S&P, Fitch, and Moody's expected to follow suit in the coming months.