Government holds 2022 deficit forecast at 1.9%, sees 0.9% in 2023

  • Lusa
  • 11 October 2022

António Costa's government has maintained its forecast for the public sector budget deficit this year at 1.9% of gross domestic product, even as it estimates a decrease to 0.9% of GDP in 2023.

Portugal’s government has maintained its forecast for the public sector budget deficit this year at 1.9% of gross domestic product, even as it estimates a decrease to 0.9% of GDP in 2023, according to the macroeconomic scenario underlying its draft state budget for next year.

Some of these figures had already been leaked by the leaders of various political parties last Friday, after a meeting with the government at which the macroeconomic scenario was presented.

The government is thus maintaining its forecast pencilled into this year’s state budget, but slightly increased that for next year as compared to its Stability Programme 2022-2026, when it had forecast a deficit of 0.7%.

According to the report on the proposed 2023 State Budget, submitted to parliament on Monday, the reduction in the budget deficit between 2022 and 2023 is of 1.0 percentage point, with the size of the nominal adjustment penalised by the increase in interest expenditure, from 2.1% of GDP in 2022 to 2.5%.

“This is the largest deterioration since 2012 and follows a period of almost eight years of reduction in the weight of this interest expenditure in output,” the report states, highlighting the forecast strengthening of the primary budget surplus to 1.6% of GDP in 2023, from 0.2% in 2022, albeit still smaller than the 3.1% achieved in 2019.

In the report, the Ministry of Finance notes “the structural balance [of] below 1.0% of potential output, close to those recorded in 2018 and 2019.”

It stresses that “this is a Budget that maintains the commitment to sound public finances” and says that “the Budget refuses the narrative that places budgetary balance and the strengthening of income and investment as incompatible objectives.”

The country’s Public Finance Council, an independent watchdog, forecasts a deficit of 1.3% of GDP for this year and a surplus of 0.1% in 2023. The International Monetary Fund (which is to update its projections on Tuesday) currently forecasts a deficit of 2.2% of 2022 and 1.0% of 2023, while the Organisation for Economic Cooperation and Development sees 1.5% in 2022 and 1.1% in 2023.