Rating action

Scope Ratings GmbH (Scope) has today affirmed the Portuguese Republic’s (Portugal) long-term issuer and senior unsecured debt ratings at A, in both local and foreign currency, and revised the Outlooks to Positive, from Stable. Scope has also affirmed Portugal’s short-term issuer ratings at S-1 in both local and foreign currency, and revised the Outlooks to Positive, from Stable.

The revision of the Outlooks reflects the expectation that the debt-to-GDP ratio remains on a firm downward trajectory over the medium term, mainly driven by sound, although declining, primary surpluses and solid nominal growth. The Positive Outlook is also underpinned by a sustained reduction in the country’s external vulnerabilities, coupled with a favourable economic performance, despite heightened geopolitical and trade tensions.

Portugal’s credit ratings are challenged by: i) an elevated, albeit declining, debt to-GDP ratio; ii) a moderate growth potential constrained by structural factors, including an ageing population, limiting labour force expansion and placing long-term pressure on public spending; and iii) vulnerability to external shocks, given the still, although declining, net external debt and open economic structure.

For the updated rating report, click here.

Key rating drivers

Public debt-to-GDP ratio remains on a firm downward trajectory despite declining primary surpluses in the medium term. After peaking at 134.1% of GDP in 2020, the public debt ratio has declined uninterruptedly to 93.6% of GDP in 2024¹ – a decline of around 40 percentage points in five years. While the government plans to continue implementing a slightly expansionary fiscal stance in coming years, Scope does not expect this modest fiscal loosening to prevent the debt ratio from declining to 88% by 2026 – the first time since 2009 – and falling further to around 77% by 2030. Robust nominal growth and positive, although declining, primary balances will remain the main drivers. A lower stock of debt as a share of GDP reduces Portugal’s fiscal vulnerability and widens the fiscal space to withstand future shocks, underpinning Scope’s decision to revise the Outlook to Positive.

The current minority government, led by the Social Democratic party, plans to support households and firm’s competitiveness, including via a continuation in the cut of the corporate tax rate until 2028, higher social transfers to pensioners as well as the reduction in personal income tax and higher defence spendings. Still, the budget balance will deteriorate only gradually and modestly. Scope projects the expected headline budgetary surplus of 0.2% in 2025 to shift to a deficit of 0.3% of GDP in 2026, while the primary surplus is set to remain high at 1.6% of GDP on average over the 2025-30 period.

Similarly, Scope projects interest costs to remain contained given the favourable debt structure, with a comfortable average maturity, moderate refinancing risks, and a large share of debt at fixed rates. Despite the replacement of repaid EFSF (AA+/Stable) and EFSM loans with more expensive marketable issuances, the interest bill is projected to remain at 2.0% of GDP (4.7% of revenue) on average in the 2025-2027 period.

The country’s improvement in public finances and the favourable fiscal outlook also bolster solid demand from international investors, with the investor base becoming more diversified by type and geography. This is notable in the rise of the share of debt issuances allocated to central banks and official institutions in syndications, which since 2023 has been hovering at around 18%² compared with an average of about 6% during the 2019-22 period. In addition, the anticipated SAFE allocation, tentatively amounting to EUR 5.8bn³ (1.9% of GDP), is set to alleviate funding needs starting from 2026.

Portugal’s strengthened economic and external resilience. The country’s economic performance will benefit from strong domestic demand, supportive fiscal measures and the impact of the recovery and resilience plan in the 2025-26 period. Portugal’s economic growth has exceeded the average of the euro area since 2022, a trend that is likely to continue going forward, supported by employment growth and Portuguese firms’ capacity to gain competitive advantages in high value sectors. This is highlighted by the steady increase in high-tech goods exports, which accounted for around 7.4% of total exports in 2024, up from 4.5% in 2015⁴. The country’s GDP is expected to expand by 1.9% in 2025, slightly lower than the 2.1% recorded last year, before growing again by 2.1% in 2026. Looking forward, Scope expects Portugal’s GDP growth to remain sound, averaging 1.8% until 2030, which will continue to support the country’s GDP per capita convergence with euro area income levels, further reinforcing Portugal’s capacity to withstand economic shocks.

The country’s external vulnerabilities have also steadily declined, which Scope expects to continue in coming years. The current account shifted to surplus in 2023 and is set to remain at around 1.5% of GDP over the medium term, reflecting improved competitiveness of Portuguese firms and sound tourism receipts. Similarly, the negative net international investment position (NIIP) as a share of GDP, estimated at -58% as of Q2 2025, is likely to continue to decline, although gradually. Robust nominal growth, the reduction in government liabilities and positive current account surpluses will support the continued reduction in the negative NIIP in the coming years. Although Portugal’s net external liabilities are elevated, these comprise a large share of FDI, mitigating risks to Portugal’s external position.

Rating challenges: high public debt, moderate growth potential, and high external vulnerabilities

First, Portugal's debt levels, though reduced from 134.1% of GDP in 2020 to 93.6% in 2024, due to strong fiscal discipline and primary surpluses, remain high compared to its peers. A still elevated debt burden constrains the government’s fiscal flexibility to address the consequences of any potential shock. Moreover, the risk of primary fiscal surplus fatigue, in a context of a fragmented parliament and a minority government, is not negligible. In addition, public finances are expected to be negatively affected by rising ageing costs, with the gross pension expenditure expected to rise to 13.5% of GDP by 2030 from 12.2% in 2022, before peaking at 15.1% in 2045, according to the European Commission. This will add further pressure on public finances in the medium to long term. Nevertheless, Scope expects consensus among major parties to reduce the debt-to-GDP ratio and to continue implementing growth-enhancing reforms to accelerate the execution of the national recovery plan. So far, Portugal has fulfilled 47% of milestones and targets, above the EU average, but Scope expects a significant acceleration going forward to maximise the disbursements of the EU funds before they expire in 2026.

Second, Portugal’s growth potential is constrained by structural factors, including an aging population and low birth rates, which limit labour force expansion. Relatively modest productivity growth, despite recent improvements, remains constrained by skill mismatches and average educational outcomes. Geographic peripherality adds logistical challenges compared to centrally located EU peers. Portugal is actively addressing these limitations through structural reforms, targeted investments, and efforts to enhance diversification.

Finally, Portugal remains vulnerable to external shocks due to its small economy, high reliance on foreign capital, despite improvements in resilience and the stability provided by its euro area membership. High external debt and the still elevated negative net international investment position reflect this dependency. Focus on the euro area for exports and substantial reliance on tourism as a key growth driver increase exposure to regional slowdowns and global disruptions. These vulnerabilities highlight the importance of economic diversification, fiscal discipline, and investment in sustainable industries.

Rating-change drivers

The Positive Outlook reflects Scope’s view that risks to the ratings over the next 12 to 18 months are tilted to the upside.

Upside scenarios for the ratings and Outlooks are (individually or collectively):

1. Further significant reduction in the debt-to-GDP ratio driven by strong fiscal discipline; and/or
    
2. Greater economic diversification, higher wealth levels, and sustained current account surpluses, further improving its external position and enhancing economic resilience.

Downside scenarios for the ratings and Outlooks are (individually or collectively):

1. Weaker fiscal performance, reversing the progress in debt reduction and undermining the fiscal outlook; and/or
    
2. GDP growth prospects weaken materially, for example, driven by stalled structural reforms or declining reform momentum.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s SQM, which assesses core sovereign credit fundamentals, signals a first indicative credit rating, which was approved by the rating committee, of ‘a+’ for the Portuguese Republic. Under Scope’s methodology, the indicative rating receives i) a one-notch positive adjustment for the euro as reflecting a global reserve currency, and ii) no negative adjustment for political risks. On this basis, a final SQM quantitative rating of ‘aa-’ is reviewed by the Qualitative Scorecard (QS) and can be changed by up to three notches depending on the size of Portugal’s qualitative credit strengths or weaknesses compared against a peer group of sovereign states.

Scope identified the following credit weaknesses identified in the QS: i) growth potential and outlook; ii) current account resilience; iii) financial imbalances; v) social factors; and vi) governance factors.

On aggregate, the QS generates a two-notches negative adjustment for Portugal’s credit ratings. This results in final A long-term ratings on the Portuguese Republic.

A rating committee has discussed and confirmed these results.

Environment, social and governance (ESG) factors

Scope explicitly factors in ESG issues in its ratings process vis-à-vis the sovereign-rating methodology’s stand-alone ESG sovereign-risk pillar, which holds a significant 25% weighting under the quantitative model (SQM) and 20% weight under the methodology’s qualitative overlay (QS).

Portugal demonstrates strong environmental performance, notably reducing CO2 emissions relative to GDP and advancing sustainability efforts. Renewable energy investments have significantly improved the energy mix. Backed by Recovery and Resilience Plan funding, these initiatives have also enhanced the external balance by reducing energy import dependence through decarbonization and energy efficiency measures. Nevertheless, the country is one of the EU countries most affected by climate change, particularly to forest fires, floods costal erosions, and droughts. Scope assesses this factor as ‘neutral’.

Social challenges persist, with an aging population, low birth rates, and income inequality constraining growth and public finances. High old-age dependency ratios and weak, albeit improving, job contract quality weigh on social indicators. Addressing these issues will likely require sustained spending, limiting budgetary flexibility in the medium to long term, as reflected by a negative qualitative adjustment in Portugal's social factors category.

On governance, Portugal compares favourably with its rating peers, underpinning a strong record of prudent fiscal policy. However, the political landscape has become more fragmented over the past few years, complicating timely policy implementation, which Scope captures with a ‘negative’ adjustment. Despite these challenges, Portugal's governance metrics continue to support its overall credit profile.

Rating Committee
The main points discussed by the rating committee were: i) fiscal fundamentals and debt trajectory; ii) macroeconomic sustainability and growth performance; iii) financial stability risks; iv) external sector dynamics; vi) governance factors; and vii) peer comparison.

Rating driver references
1. Orçamento do Estado 2026
2. IGCP, Investor Presentation, October 2025
3. EU, Safe Tentative Allocations, 30 July 2025
4. Banco de Portugal, Economic Bulletin, October 2025

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and/or Outlooks is (Sovereign Quantitative Model Version 4.1), available in Scope Ratings’ list of models, published under scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): registers.esma.europa.eu/cerep-publication/. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation        YES
With access to internal documents                                     YES
With access to management                                              YES
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Carlo Capuano, Executive Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings in January 2003. The Credit Ratings/Outlooks were last updated on 22 November 2024.

Potential conflicts
See scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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