Portugal at risk of running budget deficit

 In Bank of Portugal, News, Public Finances, State Budget

The Bank of Portugal warned today that government measures approved over the last few weeks, and others currently under discussion in parliament, could put Portugal’s public finances back in the red.

“The approval and announcement of new measures with a budgetary impact in the weeks before the publication of this bulletin affects the evaluation of the public finances situation in Portugal in the years to come.

“The magnitude of these measures and their nature — falling revenues and/or increased expenditure — implies a reduction in the budget balance”, states the central bank in its June Economic Bulletin.

And continues: “With the information available, a return to a deficit situation is to be expected, putting the desirable trajectory for public expenditure regarding new European budget rules at risk”.

The Governor of the Bank of Portugal, Mário Centeno, states that based on the new European rules, in 2024 “we are already in a non-compliance situation based on what is in the State Budget and on the measures that were already announced.”

Portugal’s budget balance of +1.2% of GDP in 2023 (+1.6% excluding temporary measures) was the third highest surplus in the Euro Zone.

The primary balance, excluding expenses with interest, stood at 3.4% of GDP. “In the following years, reductions in the total balance to 1% in 2024, 0.8% and 0.6% in 2025 and 2026, are forecast, without taking into consideration the measures that have been announced and/or approved since”, the bulletin explains.

These measures refer to “the reduction in IRS, the package to support young people, the increase in VAT reduction on electricity, housing support, and extra funding for the National Health Service (SNS), as well as the salary increases for employees in various sectors of the public administration”.