IMF forecasts Portugal’s deficit of 8.4% in 2020

  • ECO News
  • 14 October 2020

As it did for GDP, the International Monetary Fund (IMF) worsened the forecasts for Portugal's budget deficit and public debt in 2020 and 2021.

The International Monetary Fund (IMF) is more pessimistic about the evolution of the Portuguese economy, as the forecasts released this Tuesday showed, and about the progress of public accounts. The institution now forecasts that Portugal will register a deficit of 8.5% of GDP in 2020, falling to 2.7% in 2021. Public debt should rise to 137.2% of GDP in 2021, shrinking to 130% in 2021.

In the Fiscal Monitor, released this Wednesday, the IMF outlines a more negative scenario for Portugal than it had anticipated in April, the last time it released budget forecasts for the Portuguese state.

In the case of the budget balance, in April the IMF forecast a deficit of 7.1% of GDP in 2020 and 1.9% in 2021. Both forecasts have since deteriorated to 8.4% in 2020 and 2.7% in 2021, according to the new forecasts. The IMF expects the deficit to continue to decline to 1.6% in 2022 and 0.7% in 2023.

Within state expenditures and revenues, the IMF expects public spending to rise to 50.5% of GDP in 2020 because of the fall in GDP and the increase in public spending, but still below the peak of 51.7% of GDP reached in 2014. In the State Budget 2021, the government expects the expenditure ratio not to exceed 49.9% of GDP in 2020.

With public debt, the same happens: the forecast of 135% for 2020 now gives way to 137.2% of GDP and that of 128.5% in 2021 is replaced by 130%. The downward trajectory will continue until 2025, when the ratio is expected to fall to 115.9% of GDP, below the 117.7% of GDP recorded in 2019 before the pandemic. That is, public debt will take about five years to recover from the Covid-19 shock.

The IMF’s forecasts for 2020 are more pessimistic than those of the Portuguese government. The Ministry of Finance expects that the budget deficit will not exceed 7.3% of GDP and that public debt will reach 134.8% of GDP.

However, for 2021, the IMF is more optimistic than the Portuguese finance minister in predicting a deficit of 2.7%, below the 4.3% forecast in the proposed State Budget for 2021, and a public debt of 130%, below the 130.9% anticipated by the government.

This Tuesday, the Fund revealed that it foresees an economic contraction of 10% and a recovery of 6,5%, both values superior to the -8,5% and 5,4%, respectively, predicted by the state.