Portugal went from 'junk' to 'A' in the assessment of the main rating agencies

Portugal's rating was at a level known as 'junk' but, after about eight years, it is now close to the highest levels in the classifications of the main financial rating agencies, after reducing debt and balancing public accounts.

The Portuguese sovereign debt rating was among its lowest levels for several years, following the crisis that undermined investor and market confidence.

In recent years, the governments of António Costa and then Luís Montenegro have set themselves the goal of reducing public debt and achieving positive budget balances, or as close to them as possible, which has improved Portugal's image among investors.

Portugal's rating has followed this change in the management of public accounts and now DBRS rates the sovereign debt at A (high) and Moody's at A3, while Fitch currently has the rating at A-, but with a review scheduled for this Friday, September 12th.

S&P was the last agency to evaluate the rating, on August 29, and improved the rating from 'A' to 'A+', just six months after another increase, against the expectations of analysts interviewed by Lusa.

"Despite a highly uncertain trade and geopolitical environment, Portugal is expected to record moderate surpluses and will continue to improve its external financial metrics, characterized by significant economic deleveraging," the rating agency stated in its justification for the decision.

In a statement sent after S&P's decision to upgrade Portugal's rating was announced, the Ministry of Finance stressed that the financial rating agency "is clear in stating that the improvement in the rating is a result of the prudent and solid budgetary policy that Portugal has followed, aligning itself with the Government in the perspective of a budget surplus this year."

The Government also highlighted that, “at this moment, in the S&P rating there are only nine countries in the eurozone with a higher rating than Portugal (Germany, Luxembourg, the Netherlands, Austria, Finland, France, Ireland, Belgium and Slovenia)”, while “countries such as Spain and Italy currently have a lower rating”.

In an analysis, BPI Research highlights that “the expectation of maintaining the consolidation of public finances was one of the reasons for the 'upgrade' (improvement) made by S&P”, with the review being based on “the improvement of Portugal's external position (even in a context of high uncertainty resulting from US tariffs) and the commitment to the consolidation of public accounts, even in a context of persistent fragmentation of the Portuguese parliament”.

“S&P also states that the public debt ratio is expected to continue to decline in the coming years, anticipating that it will reach 84% of GDP in 2028,” it reads.

Portugal's ranking is currently close to the highest levels, about eight years after leaving the 'junk' category.

Each rating agency has its own assessment scale, but for all of them the best rating is triple A (AAA) and the letters C or D indicate assessments in which the investment is considered risky or speculative (commonly called 'junk').

It was in September 2017 that the financial rating agency Standard and Poor's (S&P) took Portugal out of 'junk', revising upwards the 'rating' attributed to Portuguese sovereign debt from 'BB+' to 'BBB-', a first level of investment.

In December of that same year, Fitch removed Portugal from 'junk' status, improving the rating attributed to Portuguese public debt by two levels, from 'BB+' to 'BBB', the second level of the investment category.

Moody's only removed the country from 'junk' status in October 2018, raising Portugal's rating to 'Baa3'.

In 2017, the public debt ratio stood at 126% of Gross Domestic Product (GDP), beginning a downward trend that was only interrupted by the pandemic in 2020, but then resumed.

Public accounts were already in the red, with Portugal recording a budget deficit of 3% of GDP in 2017.

Currently, according to the most recent data available, public debt stood at 96.3% of GDP in the first quarter of the year and the budget surplus was 0.2% in that period.

A rating is a classification assigned by financial rating agencies that assesses the credit risk (ability to pay debt) of an issuer, which can be a country or a company.