Portugal's Ministry of Finance expects a significant increase in public debt interest costs in 2027, with a rise of approximately 776 million euros compared to the previous year. This bill is expected to exceed seven billion euros in interest alone next year, after reaching six billion in 2025 and 6.3 billion in 2026. Minister Joaquim Miranda Sarmento will have to present the budget proposal within a month and a half, and these costs represent less funds available for the State Budget.
This upward trend in interest reversed a period of years in which low financing costs allowed Portugal to save money. The reversal began in 2023, resulting from the financial tightening by the European Central Bank to control inflation that followed Russia's invasion of Ukraine in 2022. The increase in debt interest costs is roughly equivalent to the expenditure increase the Government expects from the regular pension update, approximately 824 million euros.
The war in Iran is putting renewed pressure on bond markets worldwide, with expectations of further increases in key interest rates to control inflation pressured by rising energy prices. The European Central Bank already raised interest rates in June and did so again in early September, with analysts predicting another 25 basis point increase by year-end. In Portugal's case, the 20-year Treasury Bond yield has climbed to levels not seen in nearly a decade.
Portugal's public debt reached 93% of GDP in June, worsening compared to the end of last year. Prime Minister Luís Montenegro reaffirmed the goal of reducing debt to 87.5% of GDP by the end of this year, stating that the Government intends to positively surprise through economic growth and the budget surplus.
