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Portugal's outgoing PM confident in recovery plan despite government change

FILE PHOTO: Portugal holds general election, in Lisbon

By Sergio Goncalves and Patricia Vicente Rua

LISBON (Reuters) - Portugal's caretaker prime minister said on Tuesday he was confident in the country's recovery program, despite uncertainty after Sunday's election and suggestions by the winning centre-right alliance it would "reformulate" it.

Antonio Costa said it was critical that investment projects already underway, many of which have been financed with EU post-pandemic recovery funds, continue.

"I'm absolutely confident that the recovery program will not undergo any kind of setback due to a change of majority, a change of government," he told reporters during a visit to a fair showcasing investment projects covered by the funds.

Portugal's centre-right Democratic Alliance won Sunday's general election but without an outright majority so will likely form a minority government relying on negotiated support from other parties to pass legislation.

President Marcelo Rebelo de Sousa is expected to nominate Luis Montenegro, the leader of the alliance, as prime minister within a few weeks.

As of early March, Portugal had received 7.7 billion euros in EU post-pandemic recovery funds of a total 22 billion euros on offer. However, only 3.9 billion euros - 18% - has been deployed so far and to qualify for such aid all projects must be approved by a 2026 deadline.

Montenegro told Reuters in December that EU recovery funds had "a low execution rate" and the plan "was not well-designed" as it prioritized public investment over private companies.

He said that, if he won the general election and still had time, he would reformulate it "to be more effective and active in boosting the economy," or risk Portuguese companies losing competitiveness in the long term.

Javier Rouillet at rating agency DBRS Morningstar on Monday said in a client note that the most tangible short-term risk he saw from the inconclusive election was "a possible delay in the implementation of Portugal's Recovery and Resilience Plan, especially if the new government is unable to pass legislation".

A European Commission spokesperson said on Monday that Brussels was confident Portuguese authorities would implement the plan regardless of shifting politics, as has been the case in other countries.

(Reporting by Sergio Goncalves and Patricia Rua; editing by Aislinn Laing and Christina Fincher)