Commission assesses Portuguese stability programme

IP/10/422

Brussels, 14 April 2010

Commission assesses Portuguese stability programme

Today the European Commission examined the updated stability programme¹ of Portugal, which was submitted to the Commission on 29 March 2010. In line with the Commission's assessments of the Stability and Convergence Programmes of 24 Member States on 17 March (see IP/10/288) and 24 March (see IP/10/346), the evaluation takes place against the background of the economic and financial crisis which has led to a sharp deterioration of public finances since 2009 and triggered the Council decisions to open Excess Deficit Procedures (EDP) for a large majority of Member States.

"The Portuguese stability programme is ambitious and quite concrete for the years 2011-2013 but additional measures of fiscal consolidation might be needed, especially for this year, if risks to the macroeconomic and fiscal developments materialize. Fiscal consolidation is essential also in view of the necessary narrowing of the large external imbalances", said Economic and Monetary Affairs Commissioner Olli Rehn.

The Stability Programme update of Portugal was submitted on 29 March 2010 after discussion in the Portuguese Parliament on 25 March. It reflects the severe impact that the current crisis is having on public finances, with an estimated deficit of 9.3% of GDP for 2009² and a rapidly-rising government debt ratio. The Portuguese update appropriately aims at gradually reducing the government deficit to 3% of GDP by 2013, in line with the Council recommendation of 2 December 2009 to bring an end to the excessive deficit situation. However, there are risks associated with the budgetary strategy, as in every back loaded consolidation strategy, linked to the uncertainty stemming from the fact that consolidation measures spelled out in the programme still need to be adopted and implemented. Moreover, the somewhat favourable macroeconomic assumptions after 2010 may imply a lower contribution of economic growth to fiscal consolidation than envisaged, and therefore may require further consolidation measures.

Public debt, which stood at below 66.3% of GDP in 2008, is expected to grow to 77.2% of GDP in 2009 and swell further to around 90% of GDP by 2013.

Based on this evaluation, the invitations to Portugal refer to the budgetary strategy to correct the excessive deficit and reduce debt, the implementation of medium-term fiscal framework, the enhancement of the quality of public finances and the need for increasing competitiveness and narrowing the large external imbalances.

The Commission recommendation for a Council opinion on the Portuguese programme is available at:

http://ec.europa.eu/economy_finance/sgp/convergence/programmes/2009-10_en.htm

Comparison of key macro economic and budgetary projections

¹ :

According to Council Regulation (EC) No 1466/97 on the strengthening of budgetary surveillance and the surveillance and coordination of economic policies, Member States must submit updated macroeconomic and budgetary projections every year. Such updates are called stability programmes in the case of countries that have adopted the euro, and convergence programmes in the case of those that have not yet done so. This regulation is also referred to as the 'preventive arm' of the Stability and Growth Pact.

² :

According to the EDP data notification made public by the Portuguese Statistical Office after the submission of the programme, the government deficit outturn was 9.4% of GDP.