Government injects 11% of GDP into the economy
Portugal’s Government has injected the equivalent of 11.8% of GDP into the economy to keep struggling companies alive.
Apart from monthly budget expenditure because of the pandemic, the State is also underwriting guarantees and allowing the deferment of taxes as a way of increasing liquidity at a time when the Portuguese economy is still at a virtual standstill.
The pandemic has cost the Portuguese State €25Bn, or just under one-third of the total amount Portugal received from the troika of international lenders (€78Bn) in the bailout in 2011.
All told these deferments added to the other cash support in the form of loans worth €9Bn represents nearly 12% of the country’s GDP in 2019 under the Stability Programme 2020.
In the Stability Programme document approved on Wednesday by the Council of Ministers and handed to Parliament, the Government stated that it had provided a “package of discretionary measures with a non-budgetary financial impact of more than 325.1Bn [11.8%) of GDP, including liquidity support to companies, incentives, grace periods on loans and rents and tax and social security deferments”.
These measures are extraordinary, temporary and will not (for now) have a direct impact from a budgetary point of view. For example, in the case of public guarantees represented by credit lines, these will only have an impact on the budget if the companies that contracted the credit doesn’t pay it at a later date.
Moreover, these measures will have a significant impact on transferring liquidity to families and companies at a time in which the economic cycle has been for the most part put on ice and represents an emergency lifeline for companies and families to survive without encountering financial difficulties or bankruptcy while the economy is on hold.
In terms of jobs, so far Portugal’s Finance Minister Mário Centeno says that unemployment is slightly below 10%.