Fitch justified the decision with the “sustained” fall in the public debt ratio compared to the Gross Domestic Product (GDP) and the evolution of the budget balance, also highlighting the economic prospects and the “resilience” of the banking sector.

The North American agency becomes the second to rate Portuguese sovereign debt at 'A-', after DBRS did so in July.

Fitch expects the public debt-to-GDP ratio to remain on a sharp downward trend, projecting it to fall to 104.3% this year, from 112.4% at the end of 2022, and reach 96.5% in 2025.

“The projected decline of more than 38 percentage points in GDP in relation to the maximum related to the pandemic in 2020 is the largest among those classified in the 'A' category of sovereigns”.

Believing that there is “a high degree of commitment to budgetary consolidation on the part of the current Portuguese government, whose mandate expires in 2026”, Fitch analysts note that the public debt ratio in 2025 will be much higher than the median “A ”, but risks to debt sustainability are mitigated by a moderate debt repayment schedule.

The agency also highlights that public finance results for this year should be better than predicted in the Spring Stability Program.

Substantial revision

For 2023 as a whole, Fitch expects a budget surplus of 0.5% of GDP, a substantial revision compared to the agency's projection in April (-1.2%).

For the future, it warns that a reversal in the downward trajectory of public sector debt or a serious economic recession or external shock that harms the country's growth potential could lead to a downward revision of the current assessment.

On the other hand, evidence of improved medium-term growth prospects, for example, supported by the implementation of growth-promoting structural reforms and the effective use of European Union funds, and a continued reduction in the public debt/GDP ratio could lead to an improvement in assessment.

In April, Fitch had kept the Portuguese sovereign debt rating unchanged, after improving Portugal's rating from 'BBB' to 'BBB+' in October last year, with a stable outlook.

The next agency that plans to comment on Portugal is Moody’s, on May 19th.

The ‘rating’ is an assessment given by financial rating agencies, with a great impact on the financing of countries and companies, as it assesses credit risk.