BES’s clients and CGD: CFP (Portuguese Public Finance Council) warns they are a risk for deficit and debt

The recapitalization of the bank Caixa Geral de Depósitos (CGD) and indemnities to former clients of Banco Espírito Santo (BES) may have negative impacts on deficit and public debt. This is a warning made by CFP (Portuguese Public Finance Council), having disclosed this Tuesday its report on the analysis of budget execution in the first semester.

“Particularly demanding” – this is how Teodora Cardoso, head of the institution, categorizes the challenge the government has for the next three months on budget execution – a trimester of crucial importance.
Mário Centeno, minister of Finance, should decrease deficit to 2.5%, the goal imposed by the European Council; but for the time being, CFP foresees a 2.6% deficit by the end of 2016, considering the adjustments already made by the Government.

CGD’s recapitalization, as well as compensation for the former clients of Banco Espírito Santo who bear the burden of losses arising from the financial imbalance, may come to have a negative impact on budget balance and public debt.

Government has stated that CGD’s restructuring will not harm the deficit, since the European Commission authorized the injection of public capital, a transaction done under market conditions. As for the former clients of BES, there are around 2,000 retail customers that claim the 432 million euros they invested and lost, after the bankruptcy of the Espírito Santo Group (GES).

As for budget execution, the CFP says Mário Centeno should keep some risks in mind, namely: a decrease of weekly working hours – from 40 to 35 –, which lead to an increase on employees compensation; lower VAT for catering entities since July and the negative impact it had on tax revenues; and finally, the decline in international and national economic activity.