When drawing up the national budget for the coming year (OE2023), the Ministry of Finance planned to significantly strengthen the savings buffer of the State (liquidity and deposits) by 5.9 billion euros to approximately 10 billion euros by the end of this year . euros at the end of next year.
But this week it lowered the bar a bit, taking a billion euros off its annual savings target for 2023.
However, the Treasury, under the supervision of Minister Fernando Medina, has already started adjusting its financing strategy, taking into account the expected rapid rise in interest rates on public debt, not only in Portugal, but in the rest of the Eurozone countries .
The level of savings has yet to rise, but less, allowing the government to go to markets less in 2023. The deficit forecast for the State (an account that is entirely in the hands of the ministry) remains the same.
So, as said, different things will happen compared to what was implied in mid-October, when the OE proposal, now approved in parliament by the absolute majority of the PS, was delivered, according to the official documents released by the agency sent to investors who manage public credit (IGCP).
The government intends to raise the level of deposits (for savings, funds in the treasury, among other things) sharply to nine billion euros.
But now that predicted value is a billion euros lower than predicted a month ago. Still, the predicted value for the pillow rises by more than 50%.
Apart from the first and atypical year of the pandemic crisis (2020), the nine billion euros is the highest amount since 2018.
This is a significant strengthening that is happening because of the gloomy panorama that befell the economies as a result of the energy and inflation crisis, with some already seeing a recession at the end of the tunnel. In Germany and Italy, for example
It seems that Portugal is not there yet (the economy should slow down to values close to 1% of real growth in 2023); none of the most recent forecasts from the various official institutions predict a recession for the economy.
However, in Terreiro do Paço, in Lisbon, preparations have already started for a very demanding year in the management of public accounts.
It is very demanding, especially in the case of Portugal, which has one of the highest public debt ratios (measured as a percentage of GDP – gross domestic product) in Europe and the developed world, although it is in fact declining.
The government deficit target (measured in government accounts) is not changed in the new plans. It is the deficit of the part of the government accounts that the minister can effectively control.
In addition to the central government, the administrative perimeter also includes institutes, government companies and independent bodies that together with the central government form the central administration.
In addition, there is also the Social Security subsystem, the Local Administration and the Regional Administration.
Medina continues to point to a government deficit (i.e. the one best kept under control) of €5.9 billion, a value that will later be integrated into a larger account and generate the final government deficit (in the national accounts) of which the target is equivalent to 0.9% of GDP in 2023.
go to markets less
Despite the state deficit being the same as the one introduced with the OE2023 proposal, there are important aspects that are changing.
According to the same official source (IGCP), as the state can use more savings, it will take the opportunity to go to the markets less in 2023, which should be understood as a way to reduce exposure to the environment of sharply rising interest rates. to reduce rates.
The Treasury’s funding plan included raising $28.6 billion in funds; now the target for the coming year has been reduced by €1.3 billion to €27.3 billion.
In addition, the Treasury is also conducting debt (bond) exchange operations, allowing it to reschedule some write-offs, relieving pressure on the Treasury in 2023.
The volume of redemptions of government bonds and official loans amounted to 12.1 billion euros, but has now fallen slightly to 11.8 billion, according to the IGCP.
The growing economic crisis scenario calls for more and more care and caution in the management of government accounts, but interest rates are already rising sharply and are putting high pressure on interest rates.
According to the financial bureau, the final effective interest rate on all new debt issued in 2021, before the inflation crisis and the start of Russia’s war on Ukraine, was about 0.6%. In 2020, due to the huge debt purchase programs of the European Central Bank (ECB), it was even lower (0.5%).
But between January and October this year, the same interest rate underlying the new debt, i.e. “the average cost of debt issued weighted by the amount and term in treasury bills, treasury bills” and other modalities (such as OTRV and MTN) almost tripled. It’s about 1.7%.
And it should certainly continue to rise, at least as long as the ECB maintains the course of monetary tightening with the aim of reducing inflation from its current level of 10% to the desired 2%.
According to the Bank of Portugal yesterday, “in October 2022 the national debt, from the perspective of Maastricht [a que conta para Bruxelas]fell by EUR 6.1 billion to EUR 273.8 billion”.
“This decrease reflected the net write-offs of debt securities (-6.6 billion euros), namely government bonds”, but “in the opposite direction, liabilities in deposits increased (600 million euros), due to the issuance of savings bonds (1 .4 billion euros). ), partially offset by redemptions of Treasury certificates (-700 million euros)”.
Medina is bullish on the debt route, hinting that Portugal will already have left the top 3 most indebted in the Eurozone.
“Due to the efforts we have made in 2022, Portugal will no longer have this position of third on the podium of the most indebted countries and will join a pack where, in that order, are Spain, France and Belgium,” said the minister.
In any case, the weight of this debt is very high: according to Medina’s calculations, it will be around 115% of GDP by the end of this year. It is almost double the maximum provided for in the Stability Pact (60%).
Source: DN
