Portugal’s external debt at highest since 2011

Portugal recorded an external deficit of €3.215 billion until June, the highest in the first half of the year since 2011, which compares with a deficit of €721 million in the same period of 2021, the Bank of Portugal (BoP) announced on Friday.

According to the BoP, in June 2022, the current and capital account reached a surplus of €526 million, corresponding to an increase of €271 million compared to the same period of 2021.

“This rise in the current and capital account surplus was due to the increase in surpluses in the services, primary income, and capital accounts, which were partially offset by the growth in the goods account deficit and the reduction in the secondary income account surplus,” the BoP pointed out.

The increase in the goods deficit, to just under €2.12 billion, reflected higher growth in imports than in exports compared to June 2021, of 40.6% and 36.4%, respectively.

With regard to exports and imports of services, they increased 76.5% and 44.8%, respectively, compared to June 2021, with the travel and tourism, other business services, and air transport contributing to this development,” the banking regulator said.

Exports and imports of travel and tourism grew by 163.7% and 74.4%, respectively, year-on-year, allowing the surplus under this heading to rise by €898 million, to €1.28 billion.

In June, the surplus in the primary income account rose by €70 million, year-on-year, “reflecting an increase in receipts, by Portuguese investors, of investment income from non-resident entities, namely in the form of dividends.”

The surplus in the secondary income account decreased by €114 million, “mainly due to the decrease in European funds allocated to final beneficiaries.”

The capital account surplus, on the other hand, increased by €56 million, “largely driven by the growth in sales of carbon permits.”

In the year to June, the goods deficit increased in homologous terms, as imports grew more than exports (35.6% and 22.8%, respectively).

The services surplus rose, “influenced, above all, by the growth of the travel and tourism item.”

In the first six months of the year, “the lower allocation of European funds to final beneficiaries determined the reduction of the surplus in the secondary income and capital account.”

In June 2022, the financial account balance was negative €2.2 billion, resulting from an increase in external liabilities (€4.3 billion), which was higher than the increase in assets (€2.1 billion).

Regarding liabilities, the balance was mainly due to increases related to non-residents’ investment in Portuguese public debt and debt securities issued by non-financial corporations, increases in foreign direct investment in Portugal, particularly real estate investment, and reductions in Bank of Portugal’s liabilities to the Eurosystem.

On the other hand, assets increased mainly through investments by banks and insurance companies in long-term debt securities issued by non-resident entities.

Balance of payments statistics will be updated by the BdP on September 20.