Opinion on the Annual Progress Report 2026

The Portuguese Public Finance Council (CFP) publishes today it’s Opinion on the Annual Progress Report 2026 underlying the National Medium-Term Fiscal-Structural Plan for 2025-2028 (MTP), presented by the XXIV Constitutional Government in the XVI Legislature. The drafting of this Opinion was requested by the Ministry of Finance in March 2026.

This Opinion concludes that:

The estimate of net expenditure growth in 2025 is particularly sensitive to the quantification of discretionary revenue measures (DRMs). Indeed, by reducing revenue in a discretionary manner, these measures have worsened the trend in the net expenditure indicator. Primary expenditure financed from national funds before accounting for the impact of DRMs – excluding co-financing of European Union programmes, the cyclical components of unemployment benefits, as well as one-off and other temporary measures – recorded nominal growth of 5.8% in 2025. According to the available information, taking the DRMs into account raises the growth in net expenditure to 6.4%, above the recommended 5%.

Based on the available information, the rate of growth in net expenditure calculated by the CFP for 2025 shows a deviation from the commitment made by the Portuguese State that does not lead to the opening of an excessive deficit procedure (EDP). In cumulative terms, taking the base year of 2023 as a reference, the CFP calculates that net expenditure increased by 19% in 2025, exceeding the maximum cumulative growth rate of 17.4% agreed with the Council of the EU. This excess translates into a cumulative deviation of 0.5% of GDP, which is below the maximum cumulative threshold of 0.6% of GDP. Taking into account the flexibility margin associated with the national derogation clause applicable to the increase in defence expenditure does not alter the size of the deviation, given that the share of defence expenditure in GDP has not changed compared to 2021 (COFOG classification). 

Looking ahead, should the cumulative deviation exceed 0.6% of GDP, only the maintenance of a fiscal surplus or a fiscal balance close to equilibrium automatically precludes the initiation of a mechanism that could lead to an EDP. In accordance with the current wording of Regulation (EC) No 1467/97 (second paragraph of Article 2), the European Commission must draw up a report in accordance with Article 1263  of the Treaty when the ratio of government debt to GDP exceeds the reference value, the fiscal position is not close to balance or in surplus (i.e. if the general government deficit exceeds 0.5% of GDP) and the deviations recorded in the Member State’s surveillance account exceed 0.6 percentage points of GDP cumulatively. 

In the context of the assessment of the macroeconomic scenario, the forecast of real growth of 2.0% in 2026 appears likely, but is subject to predominantly downside risks. Uncertainty regarding the duration of the military conflict in the Middle East, and its broader economic consequences, would warrant a greater degree of caution. This assessment stems from a weighing up of the risks in the Ministry of Finance (MF) scenario, the uncertainty of the current macroeconomic outlook and existing projections for the Portuguese economy. In this regard, it should be noted that the growth scenario presented is higher than the most recent projections from other institutions and is based on an expectation of public investment growth exceeding 50%, which appears difficult to achieve. The macroeconomic scenario also points to a rise in inflation, as measured by the HICP, of 2.5%, which is lower than anticipated in the most recent projections presented by other leading institutions; this expectation does not fall within the most probable range when past forecasting errors are taken into account. On closer inspection, the MF’s scenario forecasts a slowdown in the inflation rate excluding energy. It is therefore considered that the MF’s forecast may underestimate the spillover effects of increases in energy prices onto other components of the household consumption basket. Finally, the analysis confirmed that the nominal growth forecast by the MF is in line with the latest available independent projections. This is due to a forecast for the GDP deflator that is considered prudent.

It is reiterated, in line with the points set out in the Opinion on the 2025 Budget, that the quantification of DRMs poses significant difficulties for estimating net expenditure, reinforcing the need for a protocol between the CFP and the MF. This document has sought to highlight these limitations, both in terms of the temporal consistency of the estimates and the heterogeneity of the costing considered by the various institutional stakeholders. Given the high sensitivity of net expenditure to DRMs, it is essential that the aforementioned protocol ensures access to tax revenue data at an appropriate level of granularity and to methodological details, enabling the CFP to make a well-founded critical assessment of the MF’s estimates and, where relevant, to prepare its own estimates. This requirement also constitutes a transparency requirement enshrined in the Fiscal Framework Law (LEO) and responds to a growing need to quantify the impacts of public policy measures based on verifiable methodologies that are subject to independent validation.

Date of last update: 30/04/2026