Portugal’s deficit reaches 6.3% this year. It’s under 3% in 2021

The Supplementary Budget, which reflects the Economic and Social Stabilization Program (PEES), approved this Tuesday in the Council of Ministers foresees a deficit of 6.3% of the GDP in 2020, announced the next Minister of Finance, João Leão, in a press conference at the Ministry. The aim is to help cushion the impact of the pandemic crisis on the Portuguese economy, which will cause a fall in revenue and a significant rise in public spending.

The Finance Minister had already admitted in an interview with Antena 1 that the budget deficit for 2020 would be between 6% and 7% of GDP, which is equivalent to a budget slippage of around 13 billion euros. When he drafted the 2020 state budget, Mario Centeno anticipated ending the year with a surplus of 0.2% of GDP.

At the press conference to present the Supplementary Budget, the Secretary of State for the Budget also admitted that the pandemic crisis “will have budgetary consequences”. Immediately before, the resigning Finance Minister, Mario Centeno, said that this would be “a difficult year, not only for the economy but also for public finances.”

The government’s budgetary scenario is based on a 5% reduction in state revenue, which is equivalent to 4.4 billion euros less entering the state coffers in 2020. 4 billion represents the fall in taxes and the remainder in social contributions. On the expenditure side, there will be 4.3 billion euros more than in the State Budget 2020.

The combination of these two factors will lead to a record increase in the deficit in a single year, according to the ECO’s calculations based on historical data from the National Statistical Institute (INE). From a surplus of 0.2% of GDP in 2019, the budget balance will increase to a deficit of 6.3% of GDP in 2020, representing an annual increase of 6.5 percentage points. This deterioration in public accounts caused by the pandemic crisis is above the 6.2 point increase in 2009, the year of the previous financial crisis.

To finance this deficit, the Minister of Finance revealed that the Supplementary Budget increases the net debt ceiling from 10 billion euros in the 2020 State Budget to 20 billion euros. The fall in GDP combined with the increase in the deficit and indebtedness will bring public debt to 134.4% of GDP, a new record.

In 2021, the budget deficit is expected to be below 3% of GDP, assured João Leão. “We hope that in 2021 there will be a significant recovery of the economy, with GDP growth of 4.3% and a significant reduction in the budget deficit, which should be below 3%”, he explained, noting that “this is the path that allows us to ensure economic and social stability for all Portuguese.”