RRP loan pushes public debt to €280Bn

 In National Debt, News

Portugal’s public debt increased €1.2Bn in May, reaching a new record of €280.4Bn because of the ‘bazooka’ loan from the European Commission.

The €600 million loan granted in May on the back of the Recovery and Resilience Plan (RRP) in a €1.16Bn cheque which is divided between €553 million in outright grants and €609 million in loans
The Bank of Portugal states that the RRP loan was one of the main factors for the increase in public debt of €1.3Bn in May. “This increase essentially reflects the loan granted by the European Commission on the back of the Recovery and Resilience Mechanism (€600 million).
In addition, issues of net positive bonds (€400 million) and an increase in deposit liabilities (€300 million) were recorded.
Portugal had registered a downward trend to the end of 2019, but the pandemic interrupted the trend when the government took on more debt in order to support families and companies that were hard hit during the two lockdowns.
The Bank of Portugal adds that public administration deposits rose €2.7Bn in May, so “from deducting these deposits, the public debt went down €1.3Bn to €254.7Bn”.
In 2021, the ratio of public debt — the most important sustainability indicator of public debt for the financial markets — fell from 135.2% of GDP to 127.5% of GDP, above the government’s forecast of 126.9% of GDP.
Portugal has invited the rising trend caused by the pandemic, but is far from the levels seen in 2019 (116%) with 10.9 percentage points separating 2019 and 2021.
In the first quarter of 2022, the ratio began a downward trajectory again, settling at 127% of GDP, with economic growth supporting the increase in debt in gross terms.
The government’s goal is to get to the end of the year with a ratio of 120.7%. The electoral manifesto of the current PS socialist government had planned on the public debt being below 110% to 2026, or below the pre-pandemic value within four years from now.
The government’s hope is that by reducing the public debt and the deficit, that would contribute to a gradual improving in Portugal’s rating this year, despite the impact of the war and rising inflation rate, and an increase in the costs of financing.