What has the European Commission decided regarding Portugal’s Draft Budgetary Plan (DBP) for 2016?
The European Commission has completed its assessment of the Draft Budgetary Plan (DBP) for Portugal, which was submitted on 22 January 2016. The Commission has taken into account the additional structural consolidation measures which the Portuguese authorities announced on 5 February.
The Commission is of the opinion that the Draft Budgetary Plan of Portugal is at risk of non-compliance with the provisions of the Stability and Growth Pact.
In particular, the structural fiscal effort falls short of the adjustment recommended by the Council on 14 July 2015. The Commission invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the Stability and Growth Pact.
This Opinion is backed by a detailed staff working document, which presents a more in-depth analysis of the DBP.
What happens next?
The Eurogroup will discuss the Commission's Opinion on the Draft Budgetary Plan for Portugal. If invited to do so, the Commission can also present its Opinion to the parliament of the Member State concerned and/or to the European Parliament.
The Commission will reassess Portugal's compliance with its obligations under the Stability and Growth Pact, including under the Excessive Deficit Procedure, on the basis of: the budgetary outcome of 2015, once validated data for that year are available this spring; Portugal's forthcoming Stability Programme; and the Commission 2016 Spring Forecast. The results of this assessment will be reflected in a new decision under the Excessive Deficit Procedure in Spring.
3.1 In relation to the macroeconomic scenario:
The Commission assessed the macroeconomic scenario included in Portugal’s DBP on the basis of the Commission's Winter Economic Forecast. This Forecast, published on 4 February, already took into account the initial DBP as submitted on 22 January. The Commission Winter Forecast is less optimistic on the macroeconomic scenario than Portugal's DBP. In particular, the DBP forecasts real GDP growth in 2016 to be stronger than the 1.6% forecast by the Commission.
3.2 In relation to the nominal deficit targets:
The nominal deficit target in the DBP is lower than the nominal deficit predicted in the Commission Winter Economic Forecast (3.4% of GDP in 2016 in the Winter Forecast, i.e. 0.8% above the Draft Budgetary Plan's target). The difference is mainly due to different macroeconomic forecasts as well as to a different assessment regarding the expected yield of some fiscal consolidation measures.
3.3 In relation to the structural deficit targets:
Applying established assessment principles, which were used also in the assessment of the DBPs of all other euro area Member States, the recalculated DBP showed a planned significant deviation from the recommended structural effort. Following the DBP, the Portuguese authorities submitted additional explanations and announced further measures. After carefully assessing all available information, the Commission is of the opinion that the DBP is at risk of non-compliance with the requirements of the Stability and Growth Pact
3.4 In relation to public debt:
The DBP, as submitted on 22 January, projects the debt-to-GDP ratio to be on a downward path, expecting it to fall from 128.7% by the end of 2015 to 126% by the end of 2016. The Commission 2016 Winter Forecast projects a slightly higher debt-to-GDP ratio of around 129% at the end of 2015, followed by a slight decrease in 2016 to 128.5%. The difference compared to the DBP reflects the projected increase in the Treasury's cash buffer, in combination with a higher general government deficit and lower nominal GDP in the Commission 2016 Winter Forecast.
What were the requirements Portugal was supposed to comply with?
For Portugal, the relevant requirement is included in the Country-Specific Recommendation adopted by the Council on 14 July 2015 to "achieve a fiscal adjustment of 0.6% of GDP", i.e. an improvement of the structural balance of this size.
What is the focus of the Opinion on the Draft Budgetary Plan for Portugal?
The Opinion focuses on compliance with the Stability and Growth Pact. For Portugal, the relevant target is the Country-Specific Recommendation adopted by the Council on 14 July 2015 to "achieve a fiscal adjustment of 0.6% of GDP", i.e. an improvement of the structural balance of this size. The Opinion takes into account the Commission 2016 Winter Forecast and on that basis provides a risk assessment. The Opinion highlights whether any measures will be needed to ensure compliance with the Pact.
For further information:
Specifications on the implementation of the 'Two Pack' and Guidelines on the format and content of draft budgetary plans, economic partnership programmes and debt issuance reports:
Vade Mecum on the Stability and Growth Pact:
Timeline: The Evolution of EU Economic Governance in Historical Context