Portugal Retains A (high) Credit Rating Amid Surplus and Declining Debt

Portugal’s public coffers keep passing the stress-test. A fresh verdict from the Canadian agency Morningstar DBRS left the republic’s credit standing untouched at A (high), signalling that, for now, Lisbon’s three-year streak of tight budgeting and falling debt still outweighs external headaches and simmering domestic risks.

At a glance

• Rating unchanged: A (high), stable outlook

• Debt ratio on track to drop below 90% of GDP in 2026

• Third consecutive budget surplus expected for 2025; minor surplus pencilled in for 2026

• Key threats: global trade tensions, housing affordability, slower Eurozone demand

• Portugal now sits one notch above Moody’s A3 and two below S&P’s A+

Why DBRS held its nerve

The agency’s analysts argue that Portugal’s recent performance offers a sizeable buffer against fresh shocks. Robust job creation, revenue windfalls from tourism and consumption, and disciplined spending have combined to shrink the public-debt ratio by nearly 30 pp since the pandemic peak. Crucially, DBRS judges that euro-area membership and the EU’s fiscal rulebook still provide an additional “institutional back-stop” that makes a sudden policy U-turn unlikely.

The fiscal scoreboard

Finance-ministry officials in Lisbon project a 0.2 % surplus for 2026 after provisional data pointed to a 0.8 % surplus last year. Even if growth cools to around 2 %, tax receipts are being propped up by record employment and steady wages, while interest costs fall as older, expensive bonds mature. That combination is set to push the debt load to 87-88 % of GDP, marginally below the euro-area average for the first time since 2004.

Lingering clouds on the horizon

DBRS did not issue a free pass. The report highlights that Portugal’s “low but sticky” productivity, a still-elevated though declining public-debt stock, and a worsening housing affordability crisis could sap competitiveness. Add in fragile global supply chains and higher defence outlays, and sustaining surpluses may prove harder than recent headlines suggest. The agency flags that tax cuts unveiled for 2026 will have to be offset by structural savings if Portugal wants to keep its hard-won fiscal halo.

How markets and economists reacted

Bond traders barely flinched; the 10-year Portuguese yield stayed near 3 %, inside the spread of comparable Spanish debt. Banco Carregosa’s chief investment officer, Filipe Silva, told clients the verdict was “as expected” but stressed that an upgrade to a positive outlook could surface later in the year if debt keeps sliding. Equity analysts welcomed the read-through for banks, which benefit from lower sovereign-risk premiums and a still-solid domestic economy.

A regional scoreboard worth watching

Portugal is now rated identically by DBRS and Fitch (A, stable), sits one notch lower at Moody’s A3, and two notches below S&P’s A+. The gentle divergence matters: an eventual alignment near the higher S&P bracket would pull borrowing costs down another few basis points, freeing fiscal room for programmes such as the Recovery and Resilience Plan (PRR) and the flagship Lisbon-Porto high-speed rail.

What comes next

Investors will focus on three checkpoints:

Spring budget update – can the government safeguard its surplus targets while delivering the promised personal-income-tax cuts?

Eurozone growth pulse – any deeper slowdown in Germany or France would spill into Portuguese exports and tourism.

Housing-market measures – new supply incentives and rental-market tweaks could ease affordability concerns that DBRS flagged as a structural risk.

If Lisbon clears those hurdles without denting its debt trajectory, the next ratings round could finally tip the balance toward a positive outlook—and cheaper financing for households, companies and the state alike.