Financial ‘airbag’ cut by €8Bn reducing Portugal’s debt

Portugal’s finance minister João Leão has reduced the treasury’s ‘airbag’ by €8.1Bn — the amount set aside to cover unpredictable shocks that may impact government spending or borrowing — in order to lower the country’s overall debt.

The airbag had been increased to €10Bn in 2020 to cover the effects of the pandemic, double the amount of cushion set aide to ‘cover a rainy day’ in 2019.
The ‘airbag’ went back to normal in 2021 as the economy recovered and the budget deficit shrank. The reduction was greater than had been forecast, benefitting the public debt ratio which went down to 127.5% of GDP.
“State coffers are no longer therefore as full as they were” to use an expression used by an ex-minister of Finances, Mária Luís Albuquerque, in 2015 after the ‘troika’ of international lenders left Portugal. At that time the treasury coffers had €7.8Bn. In 2019 it was €6.8Bn, and in 2020 because of the pandemic and spiralling government costs as a consequence, it shot up to €17Bn.
A year later, the public coffers in 2021 had €8.9Bn, down €8.1Bn on 2020, but still above 2019 levels.
According to data from the IGCP (Portugal’s treasury and debt agency) in 2021 there were the conditions to reduce the amount of ‘airbag’ at a faster rate, resulting in a lower debt ratio.
One of the main factors in reducing the ratio in 2021 was the growth of GDP by 4.9% while reducing the amount of money set aside for shocks enabled the debt ratio to GDP of Portugal’s debt to come down from 135.2% of GDP to 127.5%.