PARIS (AFP) - Ratings agency Fitch on Friday upgraded its outlook for Portugal to "positive" and maintained the country's credit rating at BB+.

Fitch justified its move by citing budgetary efforts agreed by Lisbon as well as the overall recovering economy of the country three years after its bailout.

"Portugal is making good progress in reducing its budget deficit," the ratings agency said in a statement.

The economy took a big step towards emerging from its debt bailout and regaining investor confidence late last month by beating its budget target by a wide margin.

Portugal, still struggling to overcome its debt crisis, to pull away from recession and overcome public anger at tough austerity measures, turned in a budget overshoot equivalent to 4.9 per cent of output last year.

That marked a huge reduction from a public deficit of 6.4 per cent in 2012.

But despite this marked progress in reducing the annual deficit, the gap between spending and revenues, the public debt of accumulated past deficits rose to 129.0 per cent of output last year from 124.1 per cent in 2012.

The debt now amounts to 213.63 billion euros (S$370 billion), the statistics office Ine said.

Fitch forecast the Portuguese economy to grow by 1.3 per cent this year and 1.5 per cent in 2015.

In the second half of last year, the economy pulled out of recession to show growth of 1.1 per cent and this also helped public finances, since growth raises tax income and reduces some costs.

The recovery, ending two and a half years of recession, held in the fourth quarter when the economy grew by 0.6 per cent on a quarterly basis.

In May 2011, Portugal was rescued by the International Monetary Fund and by the European Union with loans totalling 78 billion euros on condition that the country enact deep structural reforms to correct public finances and raise efficiency in the economy.

However, this slowed down the economy, and also household spending which began to recover in the last quarter of last year.