Portugal deficit returns in 2020 due to coronavirus

Portugal deficit returns in 2020 due to coronavirus

LISBON, PORTUGAL – 2020/03/28: Praca do Comercio, formerly Terreiro do Paco, which is usually full of tourists, practically without people during the state of emergency.

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Just when Portugal was getting its public finances back in shape, the coronavirus crisis has meant the southern European nation is now on track for a spending deficit of 6.5% in 2020.

Covid-19 has brought all major economies to a standstill and it’s no different in Portugal. The country achieved a budget surplus of 0.2% of its gross domestic product in 2019 — its first surplus since 1975 with state expenditure lower than revenues. However, the strict lockdown measures imposed in March — which are now being slowly lifted — have brought further economic pain. 

“We can be looking at (a) substantial change in the deficit figures but those will be completely a one off,” Mario Centeno, the Portuguese finance minister, told CNBC’s “Street Signs” Friday.

He added that the 2020 deficit is likely to be “something in the range that the (EU) Commission forecast a couple of weeks ago.”

That Brussels-based institution said last week that Portugal’s deficit is likely to reach 6.5% of its GDP in 2020 and 1.8% in 2021.

It also said total debt-to-GDP is expected to rise to 131.6% in 2020, before falling to 124.4% in 2021.

However, Centeno said he is confident the country will restore its public finances once the pandemic and the lockdowns are lifted.

“(The 2020 deficit) will be a one-off change in our very positive trajectory in the last four years. We will recover from this with the same commitment to follow a path of sustainability,” he said.

European countries are currently discussing further fiscal plans to mitigate the impact of the virus, after the European Commission suggested raising 750 billion euros ($835 billion) in the public markets.

Under the proposal, 500 billion euros would be given out as grants to sectors and regions most affected by the virus and there would be 250 billion euros in additional loans to member states.

Centeno, who also chairs the meetings of the finance ministers of the euro zone, said this was an “excellent proposal.”

“We will have difficult negotiations,” he said, “but as we know all steps going forward are difficult to take. At the end of the day, we all get to win from this.”

The 27 heads of state will discuss whether to approve raising the 750 billion euros at a summit in mid-June.

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