Moody's on Aug. 9 revised the outlook on Portugal's credit ratings to positive from stable, citing a faster-than-expected decline in the country's debt and the prospect of sustained improvements in the banking sector.

Portugal's fiscal deficit fell to 0.5% of GDP in 2018, outperforming the government's 0.7% budget deficit target.

Moody's expects the fiscal deficit to drop to the government's target of 0.2% of GDP this year on the back of "a strong tax take, job-rich growth, falling interest costs, and expenditure containment."

Portugal's debt-to-GDP is now forecast to be at 108% in 2022, lower than Moody's prior projection of 114%.

The outlook revision was also attributed to ongoing improvements in the banking sector as declines in system-wide leverage helped improve the future creditworthiness of borrowers.

Meanwhile, Moody's affirmed the country's domestic and foreign long-term issuer, domestic and foreign senior unsecured and domestic senior unsecured medium-term note program ratings at Baa3/(P)Baa3, and the foreign commercial paper and domestic other short-term ratings at P-3/(P)P-3.

The affirmation was partly attributed to Portugal's debt burden. The country's government debt-to-GDP ratio stood at 121.5% in 2018, exceeding the EU's threshold and making it one of the highest across the eurozone along with Greece and Italy.