The recent early elections have not resolved short-term political uncertainty, but this is not expected to lead to significant changes in the country’s budgetary situation, according to financial ratings agency Fitch.
Fitch, which maintained Portugal’s credit rating at ‘A-‘ in March, is confident that Portugal will continue to reduce public debt, also projecting a budget surplus of 0.4% of Gross Domestic Product (GDP) this year.
However, Fitch warns that the rise of the anti-immigrant party Chega, which could become the second-largest party in parliament once overseas votes are counted, may increase political pressure to raise spending as Portugal progresses through the electoral cycle.
Furthermore, the AD’s electoral promises include more tax cuts, which “could weaken short-term budgetary posture, although the prospects for implementation remain uncertain,” according to the financial ratings agency.
Adding to the budget pressures are commitments to increase Defense spending, notably after the goal of achieving 2% of GDP in this area was anticipated.
Nevertheless, as the AD will be the largest party in parliament, continuity in policies is expected, particularly “with a focus on pursuing moderate budget surpluses, while investment momentum benefits from the Recovery and Resilience Plan funds.”
