Government aims to reduce GDP

Posted 16 Abril, 2018

Portugal has set an objective to reduce its public debt to 102% of GDP by 2022. On Friday the Minister of Finance, Mário Centeno, who is also President of the Eurogroup of EU finance ministers, said the measure would be achieved without recourse to extraordinary restructuring measures

Presenting the Government’s Stability Plan on Friday, Mário Centeno said that it was possible to correct Portugal’s public accounts without restructuring the national debt by following the example of Belgium, which in the second half of the 1990s reduced its public debt from 130.5% in 1995, a value similar to Portugal’s in 2016, to 94.7% by 2005.

In 2016 Portugal clocked up a record 130.1% public debt-GDP ratio. The Government managed to bring that ratio down to 125.7% in 2017 and is aiming for 102% by 2022, the final year of this six-year Stability Programme period.

This reduction evaluated at 28.1 percentage points would result in a new record for any EU member state by 2022 since the European Commission began presenting comparative data.

Ireland, in the six-year period between 2011-2017 holds the current record of debt-GDP ratio achieved because of the large amount of multinational companies registered in that country and which resulted in its GDP rising 130% in 2015 alone.

“These budgetary balances (registered by the Government in 2017) are historically the lowest for Portugal. But they are not unusual for other European countries. One can take as an example Belgium which reduced its public debt ratio of 130.5% in 1995 to 94.7% in 2005”, said the Minister of Finance.

However, the big difference between Belgium then and Portugal now lies in the interest rates in the two countries. At the end of the 1990s, the interest rates in Belgium were considerably higher than they are now for Portugal and the government anticipates that the interest rates will continue to be low.

However, the Government’s ambition to achieve a record debt reduction by 2022 is viewed with some mistrust by the far-left parties in Parliament which the current minority government depends on to govern. The Left Bloc and Portuguese Communist Party fear cutting debt too sharply can only be done by shifting investment away from public services, keeping wages low and putting overall economic growth at risk.