Fitch warns Portugal’s room for new aid is not unlimited

Fitch said Portugal has more budget flexibility than in the past to respond to rising living costs, but warned that the room for new measures “is not unlimited” and must not derail the country’s debt reduction path.

Speaking in a webinar with journalists after Fitch recently upgraded Portugal’s sovereign rating to A+, deputy director for sovereign debt Utku Bora Geyikci said the country’s fiscal results have “consistently exceeded expectations” and debt has kept falling, even as governments introduced tax cuts for workers and companies in recent years. He said the key test for any new measures is whether they remain “compatible with preserving a prudent fiscal policy” and with maintaining the downward debt trajectory.

The Portuguese government is expected to approve on Thursday an income tax cut, support linked to higher fuel prices and a bonus for pensioners. Prime Minister Luís Montenegro is due to address the country afterwards, while parliament will hold an urgent debate on Friday, requested by the Socialist Party, on the increase in the cost of living.

Fitch said Portugal’s rating upgrade was supported not only by strong economic growth, but also by a significant and sustained primary surplus that helped contain financing needs. Looking ahead, Geyikci said the main points to watch are the public debt-to-GDP ratio and the sustainability of that debt, while Fitch’s Julien Grandjean said any further upgrade above A could take time, even though Portugal has been one of the countries that has most surprised on the upside.

Originally published at Eco.pt