Economists from Fitch: the Government’s goals for public debt are “too ambitious”

BMI Research foresees that if the State Budget for 2018 is approved this Monday, Portugal’s government solution will have more stability, since that is “the biggest single risk to a vote of no-confidence in the government”. The research note disclosed this Monday also takes into consideration the “political momentum” of the Socialist Party (PS), another reason why BMI Research increased the score of Portugal’s political stability. Nonetheless, public debt should decrease less than what was expected.

“The Portuguese government’s 2018 budget suggests that the country will remain on a healthier fiscal trajectory over the next couple of years at least”, analysts write, adding there are “growing sign” that the current governance solution will remain in power, in spite of the fact that the ruling party does not hold a majority. The political risk index for Portugal, calculated by Fitch’s research unit, increased from 74.4 to 75.6, reflecting a larger stability (0 is the largest risk, 100 is the lowest).

In its analysis of the Government’s proposal for the 2018SB, BMI Research considered the Finance minister’s strategy is to “take advantage” of the economic growth to “ease off austerity slightly” and maintain the deficit below the European Commission’s goals. These economists from Fitch foresee the improvements in the labor market and the economic growth will be sufficient to increase the income from the State and compensate for the measures adding up to expenses.

The Portuguese government’s 2018 budget suggests that the country will remain on a healthier fiscal trajectory over the next couple of years at least.

BMI Research also considers the Government will have more “breathing room”, since S&P improved the Republic’s rating. However, Fitch’s research unit warns against the goals set by the government for the decrease of public debt, which are “too ambitious”. BMI Research estimates are different from the Government’s in over 0.5 percentage points in 2018 and in 2.4 percentage points in 2019. The Executive foresees that the public debt will stand at 123.5% in 2018 (according to the State Budget for 2018) and 120% in 2019 (according to the Stability Programme of 2017-2021).

The research note foresees two risks: a slippage in the State’s earnings and a weaker economic growth than what the Government anticipated — the economists from Fitch point to a 1.9% increase of GDP in 2018, below the Executive’s estimate of 2.2%.