IMF Praises Portugal's 2026 Budget for Fiscal Prudence and Debt Reduction Efforts

IMF Briefing Highlights Portugal's Fiscal Strength

The International Monetary Fund (IMF) held a press briefing on October 15, 2025, where officials discussed Portugal's 2026 budget proposal. The IMF lauded the budget's objective of achieving near balance and its commitment to sound public finances. Era Dabla-Norris, Deputy Director of the Fiscal Affairs Department at the IMF, noted that the budget is 'supported by a very strong primary surplus' and 'reinforces Portugal's commitment to sound public finances'.

The briefing, part of the Annual Meetings 2025, highlighted that Portugal's public debt, which had peaked during the pandemic, is now on a 'steady downward trend'. It is projected to fall below 90 percent of GDP by end-2026, with further declines expected over the medium term.

Portugal's 2026 Budget: Key Objectives and Economic Outlook

The Portuguese government submitted its 2026 State Budget Proposal to Parliament on October 10, 2025. The proposal is anticipated to gain broad political support. The government's macroeconomic forecasts for 2026 include:

• Economic growth projected above 2%, with specific estimates around 2.2% to 2.3% of GDP.
• A continued budget surplus, estimated at 0.1% of GDP.
• A significant reduction in public debt, expected to drop below 90% of GDP for the first time in 16 years.

Joaquim Miranda Sarmento, the Minister of Finance, described the budget as 'a reformist and pioneering budget that sets a change in the budgetary paradigm, reflecting the Government's commitment to transparency and accountability towards the country, households, and companies'.

Measures to Support Households and Businesses

The 2026 budget proposal includes several key measures aimed at supporting both individuals and the business sector:

• An increase in the national minimum wage by €50, bringing it to €920 per month in 2026, with a long-term goal of reaching €1,100 by the end of the legislature.
• A reduction in the corporate income tax (IRC) rate from 20% to 19% in 2026. For SMEs and small mid-cap companies, the rate on the first €50,000 of taxable income will decrease from 16% to 15%. This is part of a multi-year plan to reach a general rate of 17% by 2028.
• Updates to personal income tax (IRS) brackets by 3.5% and a 0.3 percentage-point reduction in marginal rates for the 2nd to 5th brackets.
• An increase in the Solidarity Supplement for the Elderly (CSI) by €40 in 2026, reaching €670.
• Updates to Property Transfer Tax (IMT) brackets by approximately 2%, with the full exemption for primary residences increasing to €106,346.

Additionally, for the first time, the entire Central Administration and the Social Security Budget will integrate a program-based budgeting model, aiming for greater transparency, efficiency, and accountability.

IMF's Projections and Broader Context

The IMF's Fiscal Monitor, released concurrently with the briefing, provided its own projections for Portugal. The IMF estimates a budget surplus of 0.2% for 2025 and a zero balance (0.0%) for 2026. These figures contrast slightly with the government's more optimistic forecast of a 0.1% surplus for 2026.

Regarding public debt, the IMF projects the debt-to-GDP ratio to decrease to 90.9% in 2025 and 86.9% in 2026, which is slightly more favorable than the government's estimate of 87.8% for 2026. The IMF also noted that while it projects a near balance, other institutions like the European Commission, the Bank of Portugal, the OECD, and the Public Finance Council anticipate a deficit for Portugal in 2026, primarily due to the impact of loans from the Recovery and Resilience Plan.