EU says Budget rejection is an ‘additional risk factor’ for Portugal

The European Commission has used this year’s autumn forecast to warn Portugal: “The uncertainties related to the adoption of a budget for 2022 represent an additional risk factor.” Still, the new figures represent an upward revision to GDP for both 2021 and 2022 and a gradual improvement in public accounts over the next few years, albeit in the absence of a Budget in force.

According to European experts, government revenue is set to rebound in 2021, with tax revenue being propelled by the projected economic recovery. In addition, the intake of funds from the European Union “is expected to be sizeable”, specifically through Portugal’s Recovery and Resilience Plan (RRP).

On the expenditure side, there is another warning to be made, similar to what both the Public Finance Council and the Bank of Portugal have already said: “Current spending is also expected to be compounded by pre-pandemic structural upward pressures,” the Commission’s experts stressed. However, the measures’ gradual withdrawal should help reduce the budget deficit in 2022.

As for public investment, the EU expects Portugal’s “record low public investment” to be “reversed” over the next few years, with the help of the new projects provided for in the RRP. The Commission’s forecasts assume that the country will be able to fully implement the RRP funds planned for 2022.

Nevertheless, the experts point out that the forecasts presented this Thursday suffer from the uncertainty related to next year’s State Budget.