DBRS’ concerns over implementation of Plan for Recovery and Resilience
Financial ratings agency DBRS has joined the chorus warning of the risk that a deadlocked parliament and an unstable government could have on the implementation of the EU’s Plan for Recovery and Resilience Plan (PRR).
Like so many observers, DBRS is not ruling out another round of legislative elections in the very short-term.
In a commentary to which Lusa has had access, the financial ratings agency views last night’s election results as creating a “complicated scenario for the governability and stability of the next government”.
“In our opinion, more than public finances, the most tangible short-term risk is a possible delay in the implementation of the PRR’s reforms and investments,” said Javier Rouillet, senior vice-president of Morningstar DBRS, Global Sovereign Ratings.
According to Rouillet, “if the new government fails to pass legislation, it could increase the likelihood of another round of elections later this year or early next year“.
DBRS believes a government led by Democratic Alliance (AD) will “continue to pursue a sound fiscal policy and reduce the public debt ratio during the next legislature, using the available fiscal space to reduce taxes”.
The main risk is related to a deadlocked parliament and an unstable government “that complicates the implementation of Portugal’s Plan for Recovery and Resilience.
“Such a minority government could face significant obstacles to legislation over time and need support on a case-by-case basis,” he said, pointing to the 2025 State Budget as “the first major test for an AD-led minority government if no changes to the 2024 Budget are presented”.
He also noted that far-right CHEGA has been “the main beneficiary of the PS’s fall in the polls, resulting in a significant loss of votes for the two main parties”.
DBRS currently rates Portuguese sovereign debt at ‘A’, with a stable outlook.
The rating agency’s comment does not constitute a ratings action.
AD won Sunday’s legislative elections with 29.49% of the vote and 79 seats, compared to the 28.66% and 77 seats achieved by the PS, and with four seats for the emigré constituencies yet to be allocated.
CHEGA quadrupled its number of MPs to 48, with 18.06% of the vote.
IL won eight MPs (5.08%), BE kept its five MPs (4.46%), CDU reduced its number to four (3.3%), Livre will form a parliamentary group for the first time, having managed four MPs (3.26%), while PAN remains with just one MP (1.93%).
Lusa
