Portugal’s Outlook to Positive by Fitch on Debt Reduction

(Bloomberg) - Portugal's government bond rating outlook was raised by Fitch Ratings as the country continues to reduce public debt.

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The rating outlook was revised to positive from stable, Fitch said in a statement on Friday. Fitch in September 2023 raised the rating to A- from BBB+.

"The positive outlook reflects continued progress in reducing public debt, a record of and commitment to prudent fiscal policy, and ongoing external deleveraging, which reduce Portugal's vulnerabilities," Fitch said in a statement on Friday.

Fitch expects moderate economic growth and a modest budget surplus to reduce Portugal's government debt to 95.8% from 99.1%.

The Portuguese economy is forecast to slow again this year, after bouncing back following the pandemic, and the government has pledged to keep lowering the debt burden. Portugal had the third-highest debt ratio in the euro area in 2022, and the European Commission said on May 15 it was ranked sixth in 2023 as its debt-to-gross domestic product ratio dropped below the levels of France, Spain and Belgium.

Portugal's debt fell to less than 100% of GDP in 2023, one year earlier than the previous government had forecast.

Center-right leader Luis Montenegro is Portugal's prime minister after his coalition's narrow election win on March 10, and he heads a minority administration. The government has said it aims to post budget surpluses of about 0.2% to 0.3% of gross domestic product in the next four years.

The Bank of Portugal forecasts the economy will grow 2% in 2024, helped by private consumption and investment.

Portugal's 10-year bond yield was at 2.8% on Friday, compared to about 3.1% six months ago. It peaked at 18% in 2012 at the height of the euro region's debt crisis.

(Updates 10-year bond yield figures in last paragraph.)

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