German Chancellor Angela Merkel is praising debt-heavy Portugal's economic recovery after a bailout while cautioning its new government against going back to borrow-and-spend policies.

Merkel says Portugal must stay on the "successful road" of restoring its fiscal health following a 78 billion-euro ($87 billion) rescue in 2011 amid the eurozone's financial crisis. She says debt-cutting policies will bring more prosperity.

Merkel spoke after meeting Friday with center-left Portuguese Prime Minister Antonio Costa, who came to power in November after campaigning on an anti-austerity platform.

Costa has rolled back some of the previous center-right government's cutbacks and is now readying his delayed spending plan for 2016.

The annual budget was due to be unveiled later Friday, and European authorities were scheduled to issue their assessment of it the same day.