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DBRS upgrades Portugal on narrowing fiscal deficit, declining public debt

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DBRS upgrades Portugal on narrowing fiscal deficit, declining public debt

DBRS raised Portugal's long-term foreign- and local-currency issuer ratings to BBB (high), citing the country's improving fiscal position and the continued decline in its public debt levels.

DBRS also upgraded Portugal's short-term foreign- and local-currency issuer ratings to R-1 (low).

The trend on all the ratings is stable.

Portugal nearly achieved a fiscal balance in 2018, when it ran a headline fiscal deficit of 0.4% of GDP, down from 7.4% in 2014, according to DBRS. The rating agency said strong tax revenues and controlled government spending have driven the narrowing of the fiscal deficit.

Portugal's public debt also dropped to 122.2% of GDP in 2018 from 131.5% in 2016, DBRS said. The rating agency expects the debt-to-GDP ratio to fall by "several percentage points" annually in the coming years.

"Higher primary surpluses, moderate economic growth and low interest rates have put the debt ratio on a clear downward trajectory," the rating agency said.

In upgrading the ratings, DBRS also cited the improving credit fundamentals among Portuguese banks. The banking system's nonperforming loan ratio fell to 8.3% in the second quarter of 2019 from a peak of 17.9% in mid-2016.