By Agence France-Presse
In a statement, Fitch said it was raising the former bailout country's long-term sovereign debt rating to BBB, the lowest investment-grade rating, from BB+ with a stable outlook.
In a statement, Portuguese Finance Minister Mario Centeno hailed the move, calling it a "re-evaluation on an unprecedented scale."
"This rating reflects the path of mastering public expenditures and of an improving current accounts balance," he said.
As a share of GDP, gross government debt will decline by three percentage points this year to below 127 percent, the first decline since the sovereign debt crisis, Fitch said, noting a "firm downward trend."
"The favorable debt dynamics are driven by a combination of previous structural fiscal measures, the recent cyclical recovery and a substantial improvement in financing conditions," the agency said.
The overall budget deficit was likely to shrink to 1.4 percent of GDP this year, down from two percent in 2016 -- well below the 7.4 percent recorded in 2014.
Financial stability also improved with the recapitalizations of two of Portugal's largest banks and the sale of a controlling stake in Novo Banco to a foreign investor. Non-performing loans remained a concern, however.