The International Monetary Fund (IMF) forecasts that Portugal will end this year with a deficit of 0.2% of GDP and 0.1% in 2024, proving to be more pessimistic than the government, it was announced on Wednesday.
In the ‘Budget Monitor’ report, published as part of the spring meetings of the IMF and the World Bank, the institution led by Kristalina Georgieva revised downwards the forecast for Portugal’s budget deficit from 0.4% of gross domestic product ( GDP) for 2023. and 0.2% for 2024, forecast in June.
The IMF report does not yet take into account the state budget proposal for 2024 (OE2024), which the Portuguese government submitted to parliament on Tuesday.
In this proposal, the government foresees a budget surplus of 0.8% this year and 0.2% in 2024.
The IMF predicts a deficit of 0.2% of GDP from 2025 to 2028.
The Bretton Woods Institute is also more optimistic than in June about the public debt-to-GDP ratio, forecasting a decline to 108.3% this year and 104% in 2024.
These forecasts are above what the government expected, which predicts a ratio of 103% this year and 98.9% in 2024.
At the end of the projection horizon, the IMF points to a ratio of 89.7% in 2028.
Updating economic projections released on Tuesday, the IMF forecasts growth in the Portuguese economy of 2.3% this year and 1.5% in 2024 and a decline in inflation to 5.3% in 2023 and 3 .4% in 2024.
Praise for fiscal policy
The IMF warns that economic growth forecast for Portugal is ‘quite’ modest, praises tight fiscal policies that support disinflation and recommends continuing the path of public debt reduction.
In an interview with Lusa, the deputy director of the budget department of the International Monetary Fund (IMF), Ruud De Mooij, praised Portugal’s budgetary evolution and stated that the country remains on course.
Ruud De Mooij highlights that the IMF predicts that the ratio of public debt to gross domestic product (GDP) for this year will be 108% and emphasizes that “compared to pre-pandemic levels, it is actually lower”.
“On a European average, the government debt ratio is higher than before the pandemic, but Portugal has fallen by eight percentage points (pp.) since the pandemic. Looking at the projection for the next five years, we predict this will be the case. drop even further, to 90%,” he emphasized in the interview that took place before the presentation by the Portuguese government of the 2024 budget proposal next Tuesday.
The head of the IMF believes that the reduction trend is “appropriate” and that it mainly results from the fact that the country has a “primary surplus”.
‘This is considered appropriate as a way to reduce your debt levels [pública] and make sure you have pillows [financeiras] available, but also prepared for future shocks and challenges,” he said.
Ruud De Mooij’s most important recommendation is that Portugal “continues on this path”.
“I think this is very important, but of course it is also important how we should do this and one of the problems for Portugal is that if we look, for example, at the growth prospects for the next five years, they are quite modest,” he said .
According to the updated economic projections, which do not yet take into account next year’s budget, the IMF predicts that Portuguese GDP will grow by 2.3% this year and 1.5% in 2024.
“Maybe there is room for more growth, for example through structural reforms, structural budget reforms. Investments are being made in that. A good investment in digitalization, investments in infrastructure,” he argues.
The Deputy Director of the IMF’s Fiscal Department also recommends that “as energy prices and inflation normalize” support measures “be gradually withdrawn and more focus on these investments instead.”
“This is one of the potential areas for future improvements,” he reflected.
However, the head of the IMF emphasizes that “Portugal is an example” when it comes to a fiscal response that does not conflict with monetary policy.
“Portugal has a good stance on restrictive fiscal policies that support disinflation, while other countries take longer,” he concluded.
Source: DN
