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The Stability Programme 2019-2023 (SP/2019) foresees an improvement in the trajectory of the budget balance, that should reach a surplus from 2020 onwards. However, compared to the SP/2018 from April of last year, the trajectory of the general budget balance was revised downwards.


The exception is the year of 2019 since the deficit forecast of 0.2% of GDP is maintained, accommodating a more unfavourable impact by 749 M€ from the capital injection in Novo Banco than that previously foreseen in the State Budget for 2019. This accommodation is achieved through an upwards review in the revenue and a reduction in expected public investment.

In net terms, the new policy measures contribute just marginally to the budget balance improvement between 2019 and 2023. From 2020 onwards, the Ministry of Finance expects that the global effect of the policy measures represents an improvement of just 66 M€ in the budget balance.


Until 2023 the Ministry of Finance predicts nominal increases in the compensation of employees and social benefits, even though accommodated by the higher growth predicted for nominal GDP. Regarding the compensation of employees, for 2022 the SP/2019 considers an additional expenditure of 0.5 p.p. of GDP compared to the amount predicted in the SP/2018 (an upward revision by 1 037 M€). In what concerns the social benefits, the increase is of 0.4 p.p. of GDP or 869 M€ in that year, of which 531 M€ relate to social benefits in kind (including support for tariff reduction of public transport and the system of gratuity of textbooks).


Regarding structural adjustment, less favourable structural balances are expected between 2020 and 2022 (0.7 p.p. of GDP less) compared with those foreseen in the SP/2018. Therefore, the CFP signals a risk of deviation from the recommended adjustment trajectory in 2019 to achieve the medium-term objective (MTO), which no longer happens in 2020, since the OMP is reached in that year.


In what concerns fiscal risks, the budget balance evolution depends on the achievement of forecasted revenue and on the capacity to implement policy measures that contain the expenditure growth. The evolution of revenue is subject to the risks underlying the macroeconomic forecasts of SP/2019 already noted by the CFP. A more unfavourable macroeconomic scenario would be reflected in the trajectory of public finances with negative effects on the budgetary balance and on public debt.


On the expenditure side, the CFP has repeatedly pointed to the risk associated with budgetary pressures on the rigid components of expenditure (wages and social benefits). The upward revision of the wage bill presented in this SP compared to those previously presented confirms such pressures. Recent developments in this field allow us to anticipate that the forecasts presented may still be optimistic.


In addition to the risks that may occur from the policy measures side, there are also pressures regarding the potential impact of support measures to the financial sector. In the case of the Novo Banco, the Ministry of Finance forecasts only consider the partial use of the established contingent capitalization mechanism (2 941 M€ of a total of 3 890 M€).

Date of last update: 09/05/2019

Stability Programme . Report nº 3/2019 . 09 May 2019