Calendar
Newsletter
The Portuguese Public Finance Council (CFP) publishes today its Report no. 6/2016, on Analysis of the Stability Programme 2016-2020, in which it gives its opinion on the Government’s fiscal strategy and gauges its consistency with the rules laid down in national and European legislation. The Report complements CFP’s Opinion on the Macroeconomic forecasts underlying the Stability Programme 2016-2020, published on 21 April.
The latest information has confirmed the concerns expressed in CFP’s Opinion which highlighted important risks in two main areas: the assumptions relating to the external framework and the lack of economic grounds to justify the investment and export dynamism that are the mainstay of economic growth over the Programme’s time horizon. However, the Opinion admitted that this shortcoming could be overcome through a more detailed link between the macroeconomic scenario and the other economic policy instruments provided for in the Stability Programme (SP) itself or in the National Reforms Programme (NRP), both of which relate to the 2016/2020 period. It should be stressed that neither of these programmes (SP and NRP) contain any reference to the implementation of the new Budgetary Framework Law and the General Government Accounting Standardisation System. These are two important shortcomings, precisely because their implementation is an indispensable basis for the aforesaid link.
As for fiscal policy, the SP/2016 renews the commitment to keep the budget deficit and the public debt ratio in a downward path. The projected balance improvement for the 2016-2020 period totals 5,249 M€ (corresponding to 2.8 p.p. of GDP). The Ministry of Finance (MF) expects economic activity to have a positive impact on the general government account over the projection’s period (1,964 M€, or 1.1 p.p. of GDP), which is enhanced by a series of policy measures that will provide a cumulative total of 2,412 M€ at the end of 2020. These measures are concentrated in 2017 (1,490 M€ or 0.8% of GDP), and the expenditure side policy measures should make the largest contribution to the improvement in the budget balance.
The lack of details regarding a significant part of the fiscal consolidation measures places the achievement of the published projections at risk. Around a third of the volume of savings forecast by the MF on the expenditure side is duly specified, while the remainder, which refers to the expected decrease in intermediate consumption, investment and “other current expenditure” and amounts to 1,775 M€, at current prices, is not. The effect of these measures depends on the efficiency gains that should arise from the on-going Expenditure Review. The strategy adopted, requires the State Budget to define, on an annual basis, specific measures that will ensure the stated objectives are achieved and the outturn risk is mitigated.
Thus the SP/2016 estimates that a budget surplus of 0.4% of GDP will be achieved in 2020, which is a 3.4 p.p. cumulative improvement over the position in 2015 (net of the impact of one-offs). Given that part of this improvement stems from the impact of the expected improvement in the economic setting, the structural adjustment forecast for the same period falls to 1.7 p.p. of GDP. Net of the impact of interest, which is expected to fall, the cumulative improvement in the primary structural balance from 2015 to 2020 is equal to 0.9 p.p. of GDP.
The projected path for the balance would allow the Excessive Deficit Procedure to abrogate in 2016, entering the preventive arm of the Stability and Growth Pact from thereon. However, according to the available information, the programmed structural balance development does not match that laid down in the Stability and Growth Pact, since it does not foresee the medium-term objective being achieved within SP/2016’s time horizon, nor does it ensure compliance with the minimum annual structural adjustment in any of the years covered by the programme.
Over the period covered by the SP/2016 the MF forecasts a 18.7 p.p. of GDP decrease in the public debt ratio, which ensures compliance with the Stability and Growth Pact rules. The impact of economic growth will make the largest contribution to the cumulative decrease in the debt ratio over the SP period, around 54% of the total, followed by the primary surpluses that will contribute 41% and the stock-flow adjustments that will provide the remainder of the adjustment
The path shown in the SP/2016 carries a number of risks, in particular: (i) the macroeconomic scenario over the entire time horizon; (ii) the risks inherent in the SB/2016, which is the base year used for the projections; (iii) the asymmetric specification of policy measures and (iv) the public debt path which is subject to the previously identified risks and is contingent on early loan repayments and the use of Central Government deposits which depend on factors that are beyond the MF’s direct control.
Date of last update: 17/05/2016
