0.7% deficit can only be reached with a 0.4% surplus on H2

  • ECO News
  • 3 October 2018

H1 deficit surpassed the goal for 2018. The Parliamentarian budget support unit (UTAO) has alerted for the increases in the public servants' wages as a menace to a better state deficit performance.

UTAO has warned regarding the pressure on the budget deficit targets for this year, noting that the goal can only be achieved if there is a budgetary surplus of 0.4% of GDP in the second half of the year.

“The deficit registered in the first semester of 2018 exceeded this year’s goal, pre-defined in the Stability Pact (PE/2018-22), thus putting a great deal of pressure on the results that should be reached during the second semester of the year”, the parliamentary technicians from UTAO stated in their memo on the government’s financial accounts.

According to the Portuguese National Statistics Office (INE), the budget deficit stood at 1.9% of GDP (or €1.9 bn) on H1, which was 1.1 percentage points above the line pre-defined as the goal for this year (0.7%).

“In order for this government to achieve the 0.7% of GDP deficit goal, it will be necessary for accounts to present a surplus of 0.4% of GDP”, UTAO’s experts concluded in the same memo.

In terms of expenditure, one of the main risks comes from the government’s plan to increase civil servant’s wages, with the added weight of pressure on politicians to increase public investment.

On the revenue side, the experts from UTAO noted that “a certain degree of uncertainty should be taken into account when looking at BPP’s expected commissions on guarantees, which had been predicted to be counted in the state’s revenue for 2017, however, it had to be postponed for this fiscal year”.

UTAO also noted that H1’s deficit was connected to “old BES related operations, which can still have a negative effect in the future”. In comparison to the same period last year, the deficit went down by 4.2 percentage points: the technicians noted that the year-on-year deficit reduction happened mostly due to the application of temporary measures.