Portugal’s Public Finances still a worry for the EU

The Government delivered its Stability Programme 2019-2023 to the European Commission on Monday which includes a bonus worth €500 million for meeting EU deficit rules.

However, the Portuguese finance minister will have a new rule to worry about from 2020 regarding meeting public debt limits on an annual basis.
In terms of the budget deficit, the forecasts for the next few years are positive. Despite a contraction in the economy in the Euro Zone and Portugal for 2020 which led the Government cutting growth forecasts from 2.2% to 1.9% this year, the minister of Finances will maintain the deficit at 0.2% of GDP with expectations of annual budget surpluses for the next few years.
Furthermore, the European Commission believes that the Portuguese economy is more solid and has relaxed some of the tougher demands in terms of budgetary discipline.
Up until now, Portugal had to correct its structural deficit — which mean discounting the effects of the economic cycle and one-off measures — so as to achieve a surplus of 0.25% of potential GDP.
This Medium Term Objective has meanwhile been reduced to a balance o 0%.
This alteration of 0.25% of potential GDP corresponds to around €500 million and Finance Minister Mário Centeno says that this year he will be able to achieve that target.
This extra help from Brussels is valid for three years (2020-2022) when it will be up for review from 2022.
However, the €500 million bonus could easily be wiped out since the government has already factored in an expenditure on interest to the tune of €200 million.
In 2018 Portugal’s overall public debt stood at 125% of GDP.