IMF only sees a 0.7% deficit in 2021

  • ECO News
  • 18 April 2018

The Government foresees in the Stability Programme that Portugal will have a 0.7% deficit this year. However. the International Monetary Fund (IMF) foresees that will only happen in 2021.

While the Government foresees a 0.7% deficit for 2018, the International Monetary Fund (IMF) foresees that goal to be achieved only in 2021. Those are the forecasts inscribed on the Fiscal Monitor report from the Fiscal Affairs’ Department headed by former Portuguese Finance minister, Vítor Gaspar. On the other hand, the Fund is more confident about reducing public debt, at least until 2021. In addition, this Tuesday, IMF made an upward revision of the 2018 economic growth to 2.4%.

The deficit between 2018 and 2022 according to the Government and IMF

Source: International Monetary Fund (IMF)

The numbers from the entity headed by Christine Lagarde for the fiscal balance deviate from the Government’s forecasts inscribed in the 2018-2022 Stability Programme, disclosed last Friday. However, we should highlight that, according to the document disclosed this Wednesday by IMF, the Fund’s forecasts do not yet include the latest official data of 2017.

“Projections for the current year are based on the authorities’ approved budget, adjusted to reflect the IMF staff’s macroeconomic forecast”, is stated on the Fiscal Policy Assumptions about Portugal. In addition, the Fund signals that “Projections thereafter [2018 State Budget] are based on the assumption of unchanged policies”.

Even so, when looking at the numbers presented by the Fund, it is possible to conclude that, if they are confirmed, Portugal will not have a fiscal surplus in the next five years, something the Government foresees it will happen in 2020.

As for the evolution of public debt, the IMF is more optimistic than the Executive, at least until 2020. The Fund foresees that in two years, the public debt to GDP ratio will be down to 114.1%, slightly below the 114.9% foreseen by Mário Centeno. However, from that year onward, optimist is reversed again, as the next graph shows:

Debt to GDP between 2018 and 2022


Source: International Monetary Fund (IMF)

IMF’s forecasts for the Portuguese public debt seem to be connected to the economic growth projection itself. The Fund is more optimistic than the Government for this year, but it foresees a deeper deceleration in 2019 to 1.8%, something that is maintained in the following years, if no relevant factor changes drastically. Nevertheless, Mário Centeno foresees the economic growth will stabilize at 2% by 2022.