Portugal’s Net External Debt Falls to 39.2% of GDP, Easing Borrowing Costs.

Portuguese households watching mortgage rates, exporters dealing with a volatile euro, and investors who remember the bailout years all woke up this week to a rare piece of consensus: the country’s foreign liabilities are shrinking faster than anyone predicted. Portugal’s net external debt now stands at 39.2 % of GDP, the lowest ratio in four years and a level some analysts thought unattainable before the end of the decade. The figure offers a snapshot of an economy that—despite sluggish global trade—has learned to live within its means.

Debt Ratio Reaches Four-Year Low

The headline number comes from the Banco de Portugal’s September balance-of-payments release, which put total net liabilities at €118.2 bn. Just nine months earlier the tally exceeded €127 bn, equivalent to 44 % of national output. In absolute terms the adjustment is modest by European standards, yet the improvement becomes more striking after three consecutive quarters in which GDP kept expanding. It is the first time since the autumn of 2021 that the external position has moved this close to parity, a milestone that reduces the country’s vulnerability to swings in global interest rates and, crucially, to the policies of the European Central Bank.

What Drove the Improvement

Behind the ratio lies a cocktail of factors. A €6.9 bn financial-account surplus—fuelled by record tourism receipts and a stronger balance in services—offset the drag from a still-sizable goods deficit. At the same time, price gains in financial assets, especially the gold held by the central bank, added roughly €6 bn to the nation’s net worth on paper. Although a weaker dollar shaved part of those gains, the currency effect was not strong enough to reverse the trend. More prosaically, economic growth itself helped the denominator: the economy is on track to expand about 2 % this year, pushing the debt ratio lower even before any new cash arrives.

Public Finances: From Crisis Magnet to Eurozone Example

Lisbon’s own accounts also mattered. A string of budget surpluses—1 % of GDP in the first half and an even stronger 1.9 % in the second quarter—allowed the Treasury to cut general-government debt to 95.3 % of GDP, its smallest burden in more than a decade. Add to that the steady inflow of Recovery and Resilience Facility money and the result is a public sector that no longer competes with private companies for credit. As the government redeemed high-coupon bonds issued during the crisis years, foreign investors holding those securities were paid back, trimming external debt further. The moral is simple but powerful: fiscal prudence at home is beginning to translate into credibility abroad.

Private Sector Joins the Deleveraging Effort

Companies and households played their part. During the first half, Portuguese subsidiaries paid down some €1.2 bn in intra-group loans, turning direct investment flows marginally negative. On the income side, an ever-wider services surplus—tourism alone is worth more than 8 % of GDP—plus steady emigrant remittances equivalent to 2 % of output helped finance imports without resorting to fresh borrowing. Firms in hospitality, IT and renewable energy even managed to raise equity capital rather than debt, reducing the nation’s dependence on overseas lenders.

Market Reaction and Ratings Agencies

The improving numbers feed directly into borrowing costs. Ten-year Portuguese bonds now trade about 75 basis points above German Bunds, the narrowest spread since early 2022. In late summer, S&P Global Ratings lifted Portugal to A+, while Fitch followed with an upgrade to A, both citing an accelerated external deleveraging track. DBRS Morningstar already had the country in the A-high bracket and applauded the latest data as “evidence that imbalances are being corrected.” The upgrades in turn lower funding costs for banks and companies, creating a virtuous circle that reinforces the external position.

Looking Ahead: Can the Momentum Hold?

The central bank’s own projections suggest some slippage in public accounts next year—possibly a minor 0.1 % deficit—but most forecasters still see current-account surpluses averaging 1.3 % of GDP through 2027. Tourism bookings for 2026 are running well ahead of pre-pandemic peaks, and the pipeline of EU-funded infrastructure remains strong. The wild cards are familiar: a sharper-than-expected slowdown in core European markets, a return of higher energy prices, or financial turbulence testing banking-sector resilience. Even under those scenarios, analysts argue, a debt ratio comfortably below 40 % of GDP gives Portugal a cushion it lacked during the sovereign-debt crisis. For residents, the takeaway is equally clear: the country is no longer living on borrowed time—and that reality is beginning to show up in everything from lower sovereign yields to quieter nights for those with variable-rate mortgages.