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The Draft State Budget for 2019 (DSB/2019) maintains the 0,2% of GDP objective for 2019 that was presented in April (corresponding to 385 M€), a reduction of 1071 M€ compared to the expected result for 2018 by the Ministry of Finance (MF).

 

The improvement of the budgetary balance still depends on the effects of the economic environment, on the interest expenditure reduction, on the dividends to receive from the Bank of Portugal and from Caixa Geral de Depósitos and on the reduction of the support given to the financing sector.

Draft State Budget 2019

The effects of the discretionary measures the political decision-maker intends to introduce in 2019 have a negative contribution (albeit limited) to the deficit reduction. This contribution would be bigger if the interest savings were not considered by the MF as a policy measure. This can be explained by the fact that no specification is provided to exclude the possibility that almost all this savings will occur in more favorable market conditions than anticipated when the Stability Programme/2018 was presented.

 

The 2019 budget exercise will also be burdened by the relevant negative contribution to the budget balance (- 981 M€) coming from the carry-over effect of measures introduced in previous years.

 

Excluding the economic cycle effect and the temporary and one-off measures, the structural balance underlying the DSB/2019 recalculated by the CFP for 2019 should reduce the distance to the Medium-Term Objective. Based on the information available and on its own classification of temporary and one-off measures, the CFP estimates that the structural balance improvement expected in the DSB/2019 is of 0.2 p.p. of GDP in 2019 and of 0.1 p.p. in 2018.

 

This progress is, in each year, below the necessary to ensure improvements of 0.5 p.p. of GDP established in the budgetary framework law and of 0.6 p.p. of GDP defined by the Stability and Growth Pact. This may compromise the fulfilment of the preventive arm requirements regarding the expenditure evolution and the recommended improvement of the structural balance. However, this trajectory is compatible with the minimum linear structural adjustment concerning the debt criteria in the last year of the transition period (2019).

 

The execution of this report is still penalized by budgetary transparency insufficiencies in the documents accompanying the DSB/2019 as well as in obtaining additional relevant information in a timely and complete manner.

 

The formulation and the quantification of the policy measures in the DSB/2019 Report constitutes a problem the CFP has frequently identified and that persists, reducing the transparency in the budgetary process. To assess the coherence of the budgetary exercise, the CFP opted for adding a group of measures that are in the DSB/2019 Report but that are not included in the table that lists the impacts of the measures. The explanation of those impacts continues to present insufficiencies added to the frequent practice of not performing ex post evaluation.

 

Read here the full CFP’s analysis.

News . 13 November 2018