Socialist election win to result in fiscal consolidation – S&P Global

  • Lusa
  • 1 February 2022

S&P Global says that Portugal would now move forward with fiscal consolidation and the implementation of the Recovery and Resilience Plan after Sunday's early elections.

The majority secured in Portugal’s parliament by the Socialist Party in Sunday’s elections will translate into fiscal consolidation and implementation of the Recovery and Resilience Plan (RRP) for spending European Union post-pandemic funds, so improving prospects of the deficit narrowing in 2021, according to S&P Global, a US-based credit rating agency.

In a note released on Monday, S&P Global says that Portugal would now move forward with fiscal consolidation and the implementation of the Recovery and Resilience Plan after Sunday’s early elections gave the Socialist Party an absolute parliamentary majority.

It recalls that the country is expected to receive €16.6 billion, just under 8% of gross domestic product, in Next Generation EU grants and loans between now and 2026.

The agency’s analysts also estimate that Portugal had a public sector budget deficit of 4.0% of GDP last year, down from its previous estimate of 4.4%. This, they note, would be “the second-lowest deficit among euro-zone countries” based on their projections.

Portugal is set to achieve this result despite the negative impact of the pandemic on its key tourism sector, which before the pandemic accounted for 8.4% of gross value added and 10% of employment, the note stresses.

It also anticipates that once the pandemic situation stabilises, Portugal should see a “strong recovery in tourism revenues” and that the economy is set to grow by 5.7% this year, so “benefiting public finances”.

For this year, S&P projects a budget deficit of 3.2% of GDP and a decrease in total public indebtedness to 115% of GDP by the end of the year, from a peak of 122%.