Fitch and DBRS praise Portugal’s public spending discipline

Improved public accounts in the last few years have put Portugal in a comfortable position despite political instability, say leading financial ratings agencies.

Both Fitch and DBRS have downplayed the current ‘political soap opera’ on reaching agreement to State Budget 2025 and believe that the squabbles will have no impact on Portugal’s financing costs.

Speaking to the online news source ECO, Javier Rouillet, senior vice president of Global Sovereign Ratings at Morningstar DBRS, points out that the agency had already expected that getting the parties to sign off on the State Budget for 2025 (OE2025) would be “a challenge” when the agency improved the outlook for Portuguese sovereign debt from stable to positive, with an A rating in July.

“The government’s lack of a majority in parliament has hampered getting approval for its political policies and in some cases has resulted in the approval of measures proposed by the opposition.

The prospect of getting the State Budget for 2025 passed remains slim,” he says. Although he points out that “the time to reach an agreement is running out”, he believes that “there is still room to reach an agreement”. The budget will enters decisive phase this week.

In statements to ECO, Fitch points out that the “current political landscape and the minority position of the centre-right PSD government introduces a certain degree of policy and political uncertainty, especially with regard to the approval of State Budget 2025” and admits that in a scenario of the government’s budget proposal being thrown out, the Government would have to govern in “twelfths”, in other words the government cannot exceed one-twelfth of total expenditure planned “, according to the Budget Framework law currently in force until agreement is reached.

Both agencies highlight the positive evolution of public accounts in recent years, ruling out that the current deadlock will have an impact on investor evaluations.

Photo: Lusa: Justin Lane