Portugal: Government Falls After Losing Confidence Vote

The Republic of Portugal (A (high), Stable) might go to the polls again in May 2025 after Prime Minister Luís Montenegro from the Democratic Alliance (AD) lost a confidence vote on March 11, 2025. The President of the Republic Marcelo Rebelo de Sousa will decide after consulting the main political parties whether to call for snap elections or appoint an alternative Prime Minister under the current legislature. The most likely scenario is that the President dissolves parliament and calls early elections for the 11th or the 18th of May, according to local press. There is still a chance that the President could ask the ruling coalition to propose a new prime minister to replace Luís Montenegro in the current legislature, although this seems less likely now. If the President of the Republic calls for new elections, these would be the third parliamentary elections in less than four years in Portugal. This increases political uncertainty in Portugal at a time when external risks have increased significantly and pressures to spend more on defence are building up.

Key Highlights
-- Portugal looks set to hold snap elections by mid-May 2025, entering again a period of political uncertainty.
-- The absence of a fully functioning government could lead to some delays in the implementation of Portugal's recovery and resilience plan and postpone TAP's privatisation plans.
-- The commitment of the main political parties to reducing public debt and Portugal's strong fiscal position and growth outperformance mitigate the risks.

"Unless the commitment to fiscal discipline weakens and leads to a significant increase in Portugal's public debt ratio over the medium term, which is not our current expectation, we do not expect this political crisis to generate negative pressures on sovereign credit ratings," said Javier Rouillet, Senior Vice President, Morningstar DBRS, Global Sovereign Ratings.