The rating agency expects that this money will boost public investment, encourage labour market reforms, and speed up the convergence of Portuguese wages with European ones.
European funds for post-pandemic recovery are a “unique opportunity” for the Portuguese economy to recover, according to Moody’s. The rating agency considers that the country has a “good track record” of taking advantage of EU funds and is, therefore, confident about the use of this money. It also noted that the greater the economic growth, the easier it would be to reduce public debt again.
“Portugal has a good track record of absorbing European funds. We are very optimistic about Portugal’s ability to use these funds and take advantage of this unique opportunity to grow,” says Sarah Carlson, Moody’s vice-president, at an event held this Wednesday. Between 2014 and 2020, the execution of structural funds in Portugal was 62%, compared to 55% on average in the European Union.
Carlson said Portugal is one of the European countries that will benefit most from the European “bazooka” (as a percentage of GDP). Between subsidies worth 13.2 billion euros, 15.2 billion euros in Next Generation EU loans and a further 5.9 billion euros in SURE funding (of which 3 billion euros has already arrived in 2020), “there is the potential to double public investment over the next two years.”
Besides boosting public investment, this funding could also encourage labour market reforms and speed up the convergence of Portuguese wages with European ones. At the same time, it could also help to reduce debt. The Portuguese government expects that the mobilisation of European funds will add 0.5 percentage points to average economic growth between 2021 and 2026.
“And it is much easier to decrease debt when the economy is growing,” says Carlson, stressing that one of the reasons for Portugal’s quality rating before the pandemic was precisely the debt reduction. Due to the pandemic, Portuguese debt hit record highs in 2020. “There were very significant increases in the debt burden in some countries. In Portugal it was not as significant as in France, but still high,” says the vice-president. “But financing costs have remained contained.”
2Despite the optimism towards economic recovery, Moody’s analysts warned that there are strong uncertainties, associated with the pandemic’s evolution and the vaccination campaign. The agency expects that this lockdown will not have as negative an impact on the economy as that of March and April.