Portugal's debt has been downgraded to junk status by credit rating agency Fitch, despite the country's efforts to cut its deficit.
The rating suggests investors buying Portuguese government debt face a high risk of not getting their money back.
Fitch says Portugal's poor growth prospects mean it will struggle to get its deficit and debt under control.
The announcement came as hundreds of thousands of people took part in a general strike in Portugal, in protest at the government's cuts.
The austerity measures were introduced following an international financial bailout.
The strike has left virtually no trains and buses running on some routes and hospitals are barely ticking over, the BBC reports.
Ports, airports and several major exporting companies are also taking part.
The most controversial measure in the spending cuts is the suspension of holiday and Christmas payments for most state employees and many pensioners.