Portugal submits 2022 budget to EU, sees more ‘uncertainties’

  • Lusa
  • 20 April 2022

The budget bill is to get its first reading in parliament on April 28 and 29, with a final reading and vote scheduled for May 27.

Portugal’s government has submitted to the European Commission its draft state budget for 2022, which was delivered to parliament in Lisbon last week, and in which it foresees “uncertainties” related to the war, according to the website of the European Union executive, which is now expected to assess the document.

According to the commission, the draft budget was delivered on Tuesday, in the form of a 39-page document in English. In it, the government points out that the budget is presented in a context of recovery of the Portuguese economy, but also of “uncertainties and new challenges” resulting from Russia’s invasion of Ukraine.

Every year, euro-zone member countries must submit their draft budget plans to the commission, which then reviews them to ensure that national economic policy is coordinated and that all members respect the EU’s rules on economic governance, including on public debt and deficits.

Last month, the EU’s economy commissioner, Paolo Gentiloni, said that he was confident that Portugal would deliver the budget plan in time for the country-specific recommendations, which Brussels is to adopt in May, despite delays in the government taking office in the wake of the January 30 general election.

In an interview with Lusa, Gentiloni said that the commission was “of course aware” that the government had yet to take office – due to delays causes by a court-ordered partial re-run of voting by emigrants – but said that he hoped that the budget would arrive in time to be taken into account in the commission’s spring economic and budgetary policy coordination exercis.

The draft budget forecasts continued economic recovery in Portugal this year, but with the uncertainty caused by the war forcing the government to cut its growth forecast to 4.9%, from 5.0% as foreseen in its Stability and Growth Programme the period 2022-2026, released on 28 March, and also launch €1.8 billion of measures to mitigate price hikes.

The growth forecast had been 5.5% in the draft state budget for 2022 that parliiament rejected in October, triggering the election.

The Ministry of Finance team, led by Fernando Medina, said that the continued recovery, together with the reduction of spending associated with emergency measures adopted during the pandemic, should reduce public debt to 120.7% of gross domestic product from 127.4% in 2021 and the public sector budget deficit to 1.9% of GDP, a downward revision from the 3.2% forecast in October, but in line with the target set in the 2022-2026 Stability Programme.

The budget plan maintains the scenario for the labour market included in the stability programme, with an estimated unemployment rate of 6.0% for this year, a downward revision from the 6.5% forecast in October.

According to the government, the geopolitical tensions resulting from the invasion of Ukraine in February “have exacerbated inflationary pressures” by pushing up the prices of fuel, energy raw materials and several primary goods.

To mitigate the impact of inflation on the economy and protect the purchasing power of families and the production conditions of companies, the government has announced extraordinary measures, such as the reduction of the petroleum products tax (ISP) equivalent to a reduction in the value-added tax (VAT) rate to 13% from 23%.

The budget bill is to get its first reading in parliament on April 28 and 29, with a final reading and vote scheduled for May 27.