LISBON, Nov 16 (Reuters) - The resignation of Portugal's prime minister will trigger instability that could delay economic reforms, while making it harder for the country to keep a balanced budget and further reduce debt, bankers warned on Thursday.

Antonio Costa resigned last week over an investigation into alleged illegalities in his government's handling of lithium and hydrogen projects and a large-scale data centre. President Marcelo Rebelo de Sousa called a snap election for March 10.

The government remains fully functional for the time being, at least until parliament has had its final vote on the 2024 budget on Nov. 29. From then on, the government will only have day-to-day management powers.

Speaking at a conference in Lisbon, Antonio Horta-Osorio, former chairman of Credit Suisse who was the CEO of Britain's Lloyds Banking Group for a decade until 2021, warned Portugal would enter "a situation of great instability".

"We are not going to have a government in the next five months and that is a big cost in terms of uncertainty for the country," said Horta-Osorio, now a senior adviser at Italy's Mediobanca.

The CEO of bank Millennium bcp, Miguel Maya, noted that at election time countries "tend to favour short-term policies instead of reforms to increase competitiveness in the long term".

"Obviously I am very concerned," he said. "There is an increased risk of delaying some changes that are of the greatest importance."

He said reforms should create an environment for companies to achieve better results and compete more effectively globally.

The 2024 budget projects economic growth will slow to 1.5% in 2024 from 2.2% expected this year and political instability may also delay public investment, such as using COVID recovery funds, and private investment.

"Probably no one wants to invest when there is great instability," said Pedro Castro Almeida, CEO of Santander Portugal.

Paulo Macedo, the head of state-owned Caixa Geral de Depositos, said it was important to keep a balanced budget and reduce debt, "which in nominal terms is still significant, although its ratio (to GDP) has fallen".

The government aims for a surplus of 0.2% of GDP next year, after a surplus of 0.8% in 2023, and wants to cut the public debt ratio to 98.9% of GDP from 103%. (Reporting by Sergio Goncalves Editing by Catarina Demony and Mark Potter)