The State’s financial buffer, an instrument imposed by the Troika (during the adjustment program launched in 2011) to guarantee the liquidity and security of public accounts (payments to creditors, so to speak) in case of market difficulties , should play a very important role. strengthening next year, of about 30% compared to 2023, according to official figures.
The goal of Finance is to increase the value of the above-mentioned buffer (basically state deposits) to 7.7 billion euros (compared to the 6 billion estimated at the end of this year), which will be the largest increase in this item since the pandemic. , they indicate the series composed of figures from the agency that manages the Portuguese public debt (IGCP).
Apart from this year 2020, which was exceptional, the increase now forecast by Finance, in the context of the 2024 State Budget (OE 2024), will be the largest in the last eight years, and it will be necessary to go back to 2016 to find a higher one (more 55%). The information is contained in the first presentation made by IGCP to investors and already reflects the new OE proposal, the general discussion of which begins today in the Assembly of the Republic.
The bet on the strategy of the so-called “full treasury”, as the former Minister of Finance, Maria Luís Albuquerque, called it, is due to the pronounced increase in uncertainty about what the year 2024 will be due to increasing and serious risks from a geopolitical point of view (two wars going on on Europe’s doorstep, one in Ukraine, the other in Gaza and Israel) and the relentless rise in interest rates.
With the country having just left the Troika’s adjustment and rescue program in 2016 (it had ended in mid-2014), coffers began to be filled with cheaper funds, even to pay for much more expensive ones, such as inherited debts. the time before the program, when the Republic was brutally indebted and at prices that, as it turned out, were unaffordable.
In that year 2016, the first full year of António Costa’s PS (with Mário Centeno in Finance), the cushion rose to 10.2 billion euros.
It was the Ministry of Finance that benefited from the new period of lower and falling interest rates. All told, the interest rate on new government bonds that year was about 2.8%, well below the 4.5% in 2010 or 5.8% in 2011.
Later, in 2020, in the middle of the pandemic, when the European Central Bank (ECB) injected ultra-cheap money (almost free of charge) into the Eurozone, and faced with a strong need to finance measures to combat the Covid-19 pandemic the government to the markets and decided to retain part of this debt for precautionary and liquidity reasons.
At the end of 2020, the cushion was worth no less than 17 billion euros.
It was possible to “fill the treasury” with historically cheap funds. To give you an idea: that year the Republic took out debt (new debt only) at a weighted average interest rate of only 0.5%, at least the lowest since the existence of the euro. Currently, there is no pandemic and the country’s fiscal situation is somewhat different.
It is true that the debt burden is still one of the highest in Europe, but it is falling, and this year the government should produce a surplus of the order of 0.8% of gross domestic product (GDP ), the highest in democratic economies. history. Next year, Finance Minister Fernando Medina plans to repeat the overdose with a balance of 0.2%.
To protect these types of results, the government wants to strengthen the liquidity buffer, to the great satisfaction of Brussels, the ECB, the major creditors and rating agencies, now in a context of rampant uncertainty.
An orange warning called uncertainty
Now there is no pandemic, but there is high and latent inflation as a result of the wars. And correspondingly high interest rates.
At the annual congress of the Order of Economists, which took place last week, Fernando Medina emphasized that the external conditions used to support next year’s state budget proposal depend on “factors that cannot be controlled” and which “will have a major influence on 2024 and political choices,” the minister said, quoted by Lusa.
Factors such as “the high geopolitical uncertainty, which has been heightened in recent weeks by the conflict in the Middle East,” Medina pointed out.
“The only certainty today is that we do not know whether the path will be to contain the conflict or, on the contrary, to spread it to the region,” the government official said of the war in Gaza and Israel.
This focus on a new wave of uncertainty, which could ultimately lead to more inflation and the persistence of very high interest rates for longer than anyone thinks, was also expressed last week by ECB President Christine Lagarde.
“We have kept the rates in place, but that doesn’t mean we won’t raise them again”
Last Thursday, ECB rates finally stopped rising, after a historic and violent tightening, which lasted more than a year, and is now at the highest values since the existence of the eurozone.
However, there is a new and ‘unpredictable’ threat that hinders this plan: for example, the escalation of the war in the Gaza Strip and Israel could cause more inflation.
This new situation could once again derail energy prices and revive the urgency to tighten interest rates even further or, at least, keep the chain as it is for longer.
“We are monitoring the situation, we are very attentive to the economic consequences that this could have in terms of direct or indirect impact on energy prices, but also on the confidence level of economic actors,” Lagarde warned.
“Just because we’ve maintained interest rates doesn’t mean we won’t raise them again. I won’t say if we are at the peak. It depends on the data [que o BCE vier a receber]the central banker said. Therefore, she continued, “it is completely premature” to talk about rate cuts now.
Source: DN
