Portugal may have recorded a budget surplus in 2019 – UTAO

Portugal may have registered a budget surplus last year, UTAO technicians anticipate in an analysis released this Monday, March 16th. If it comes to pass, this “milestone” comes a year ahead of what was the Government’s initial estimate. However, the forecast is at stake and a deficit is more likely because of the economic impact of the new coronavirus and the spending on the support measures.

The Budget Technical Support Unit (UTAO) foresees that last year’s budget balance in national accounts, which interests the European Commission, should be between -0.2% and 0.2% of GDP, with the central value of the range being a budget balance of 0% of GDP. The technicians of the Parliament admit that the Minister of Finance, Mário Centeno, can make a new outstanding achievement in 2019, as he had already anticipated, surpassing the target of a deficit of 0.1% of GDP (OE 2020).

“The UTAO estimates that the general government budget balance in 2019, from a national accounts point of view, has risen to – 0.0% of GDP (central value of the range from – 0.2% of GDP to 0.2% of GDP), a result that configures a situation of budgetary balance”, writes the UTAO in the report. The Government’s initial estimate when drawing the State Budget for 2019 was a deficit of 0.2% of GDP.

The budget surplus was only expected for 2020 with Centeno forecasting a positive balance of 0.2% of GDP. However, the Prime Minister, António Costa, has already admitted in an interview to SIC that “there will probably” not be a surplus – reinforcing the idea that this is not the priority at the moment – because of the measures taken by the Government and the economic impact of the new coronavirus. Today the Minister of Finance and the Minister of Economy, Pedro Siza Vieira, will explain the measures already taken and announce a stimulus package.

What is the effect of the virus on public accounts? On the one hand, there should be less tax revenue and social security contributions. On the other hand, the state will have to spend more on the health sector, on employment and family support – the minister of Labor has estimated spending at two billion euros per month, about 1% of annual GDP – and on unemployment benefits if the labor market deteriorates.

Depending on the duration of this shock and the pace of subsequent recovery, the State Budget may be more or less affected. Last Friday, the Standard & Poor’s rating agency estimated that the deficit could reach 0.3% of GDP in 2020, based on a growth forecast of 1.3%.

The good news given by UTAO in this report is that the public accounts were balanced, in the words of the technicians, before the impact of the virus arrived, putting this year’s budget at a better starting point than estimated in the 2020 State Budget proposal. The “official” figure for the 2019 budget balance will be released next week by the National Statistics Institute (INE).