Portugees begrotingstekort te groot (en)

The European Commission today adopted a report on the Portuguese budgetary situation after the government recently announced that the deficit will reach 6.2% of GDP this year. Such deficit is neither close to the 3% reference value set in the European Union Treaty nor can it be considered temporary or exceptional, as defined by the Treaty. The debt-to-GDP ratio is also above the 60% reference value and on the increase. In parallel, the Commission also examined Portugal's updated stability programme which foresees a decrease of the deficit to 4.8% in 2006 and 2.8% in 2008. This does not prejudge the deadline for correcting the deficit which will be agreed by the Council when deciding on the Commission's future recommendations in the context of the excessive deficit procedure.

"What Portugal and Europe needs is not a raising deficit and debt but rather a virtuous circle of economic reforms and structural budgetary adjustment to make room for the sort of expenditure that fosters competitiveness and delivers higher growth and long-lasting jobs" says Economic and Monetary Affairs Commissioner Joaquín Almunia i.

EDP report

In accordance with Article 104.3 of the European Union Treaty, the Commission today adopted a report indicating that the Treaty requirements concerning the deficit and debt criteria are not fulfilled by Portugal. This report takes into account the figures contained in the most recent update of Portugal's stability programme.

After a reported deficit outturn of 2.9% of GDP in 2004, Portugal plans to record a government deficit of 6.2% in 2005. Such a figure is well above the 3% reference value set in the Treaty and cannot be considered exceptional, since it does not result from an unusual event outside the control of the government, nor is it the result of a severe economic downturn. Portuguese economic growth has been slow in the last few years, but it was negative only in 2003 and is expected to pick up over the coming years. The deficit is also not temporary, as it is projected to be above the reference value for three years.

At an expected 66.5% of GDP (up from 61.9% in 2004), the government debt is also above the 60% reference value and expected to increase until 2007.

The consideration of "other relevant factors", as required under the Treaty, reinforces the above conclusion. Portugal launched a programme of structural reforms in policy areas with significant budgetary impact such as education, healthcare and some areas of public administration.

In April 2005, the government also launched a plan to foster competitiveness and potential growth through a system of tax incentives for R&D. But it is difficult to see the impact at this stage on growth and budgetary developments. The examination of the country's medium-term economic and budgetary positions and of other factors does not alter the assessment on the budgetary situation.

Full report available on:

http://europa.eu.int/comm/economy_finance/about/activities/sgp/procedures_en.htm

For details on the EDP procedure and background see press release on Italy IP/05/681 of 7 June 2005.

Stability programme

Portugal submitted in early June a revised stability programme for the period 2005-9 ^[1] . The programme foresees a reduction of the deficit to 4.8% in 2006, 2.8% in 2008 and 1.6% in 2009.

The sharp deterioration in the government accounts in 2005 compared with a deficit of 2.9% of GDP in 2003 and 2004 is explained by a re-assessment of expenditure growth and the decision not to resort to the one-off measures that had been planned in the previous programme and would have had a sizeable budgetary impact. Instead, the update outlines a strategy based upon the implementation of structural measures on the expenditure side together with an increase in revenues in the short run. A corrective package will take effect already in the second half of 2005, reducing the deficit for the whole year by some 0.6 percentage point to the expected 6.2%.

The programme is based on increased economic growth for 2005 and 2006 (see table below) which appears realistic albeit with some risks in the latter part of the five-year period. As the budgetary outcome also depends on the effectiveness of the consolidation measures, the government might have to fulfil its commitment to take additional measures in order to avoid that the deficit remains above three percent for longer than planned.

The Commission notes that the programme contains no specific information on the long-term sustainability, but as the measures envisaged are likely to have medium to long term positive effects this should contribute to improving the situation.

In this context, Portugal should limit the budgetary deterioration in 2005 by ensuring a rigorous implementation of the announced corrective measures; achieve a sustained correction of the excessive deficit and; seize every opportunity to accelerate the reduction of the budget deficit and to bring the gross debt ratio onto a firm downward path.

Table: Comparison of key macroeconomic and budgetary projections