Portugal’s Debt Ratio Rises, Hinting at Pricier Loans for Expats

In barely twelve months Portugal has shifted from celebrating a debt ratio below the symbolic 100 % line to watching it edge back up to 98.1 % of GDP. The figure, released this week by Banco de Portugal, is neither a crisis signal nor a reason for complacency; rather, it is a snapshot of an economy that keeps growing just fast enough to tame its liabilities—yet not fast enough to erase them. For foreigners who live, work or invest here, the number sits at the intersection of taxation, borrowing costs and the quality of public services they rely on.

Why an extra percentage point matters to newcomers

The jump from 96.3 % in the first quarter to 98 % in the second is small in absolute terms, but it hints at the tightrope the government must walk as it tries to fund welfare, infrastructure and green-energy projects while reassuring Brussels and the rating agencies. Public debt influences the risk premium on Portuguese bonds, which, in turn, feeds into mortgage rates quoted by local banks. Anyone eyeing property in Lisbon or planning to refinance in Porto will have noticed Euribor-linked offers creeping higher since spring, mirroring the subtle rise in sovereign yields.

Inside the numbers: growth, surpluses and a larger debt stock

Paradoxically, the headline ratio fell by 2.2 points compared with a year ago even though the Treasury issued an additional €2.5 B in June alone. The so-called Maastricht metric improves when the economy expands, and Portugal managed 1.9 % year-on-year GDP growth despite tepid German demand for its exports. A primary budget surplus of roughly €2 B in the first half cushioned the blow, while fatter central-government deposits—now at €28.2 B—gave officials breathing space to time their bond auctions.

Southern Europe score-card: Portugal outpaces but has not escaped

Zooming out, the Iberian debt ratio still looks healthier than Spain’s 101 %, and dramatically lower than Greece’s 153 % or Italy’s 136 %. Credit-rating agency S&P rewarded Lisbon with an A stable in March, a notch above Madrid. The badge reflects a decade-long slide from the pandemic peak of 135 % in 2020, the steepest retrenchment in the euro area. Yet the 60 % ceiling enshrined in EU fiscal rules remains distant; Brussels grants leeway because Portugal is viewed as having “no excessive imbalances”, but the honeymoon will end once the Stability Pact’s full force returns in 2026.

Voices from academia: prudence, but not at any price

Economist Ricardo Reis warns that, even at sub-100 % levels, high debt can crowd out fiscal space precisely when a slowdown hits. João Duque counters that slicing liabilities too quickly could starve social programmes of cash, while Susana Peralta pushes for a tax overhaul that spreads the burden more evenly rather than blanket austerity. Their common ground: the primary surplus must endure and productivity needs a boost, otherwise today’s comfortable financing costs could vanish with the next external shock.

Practical implications for expats: what to watch

First, borrowing. Mortgage spreads have widened only marginally, yet every uptick in the sovereign rate feeds through within months because most contracts are variable-rate. Second, taxation. The Finance Ministry insists that no broad-based hikes are on the table for 2025, but a higher debt ratio limits room for fresh deductions in the non-habitual resident regime. Third, public services. Budgets for the SNS health system and the fast-growing digital-nomad visa department still depend on Brussels accepting Lisbon’s modest deficit target of 0.3 % of GDP.

Looking ahead: the 2026 test and what could derail it

Officials in Lisbon privately bet on a ratio near 92 % by the end of 2026, contingent on growth hovering around 2 % and continued primary surpluses. Two variables could spoil the script: a sharper-than-expected slowdown in Germany and France, which buy a quarter of Portuguese exports, and a further spike in European Central Bank rates if inflation proves sticky. Either would erode the denominator effect that has been Portugal’s best ally since 2021. For expatriates, that means keeping an eye not only on local headlines but also on Frankfurt and Berlin—the places where tomorrow’s mortgage payments may ultimately be decided.