The seven State Budgets (OE) of the PS government, of António Costa, have saved 1.3 billion euros in interest between 2016 and 2022 compared to the initial forecast, according to calculations by Dinheiro Vivo (DV) from the official data from the General State Account and budget implementation.
These very significant savings would not have been possible without the zero interest rate policy. (which together lasted between 2016 and mid-2022) and the massive purchases of government bonds by the European Central Bank (ECB).
That €1.3 billion in interest translated into less budget spending in these years, as the Treasury Department decided to bill those gains to help reduce the deficit (which even became a surplus in 2019, before the pandemic) and debt .
To give you an idea of the size of these savings, €1.3 billion would finance four years of additional spending with replacement of working time and recovery of wages claimed by teachers (six years, six months and 23 days).
The Ministry of Fernando Medina estimates that if it responded positively to the challenge of education professionals, it would cost 331 million euros a year and structurally increase spending, which in the minister’s view is totally against the policies of certain bills and of the Stability Pact.
According to Finance, “the state budget for 2023 protects income and promotes investment, ensuring a trajectory of correct bills, with a reduction in the budget deficit and government debt as a percentage of GDP”. Therefore, any gains made in debt service have been used to reduce costs and avoid further debt.
The inventory of the budget series shows that since 2016 the government has failed to save on interest in only two years (2017 and 2018), and yet these are marginal missteps (interest was only 16 million euros higher than predicted in budgets for that year).
Apart from that, the savings achieved were indeed significant, with a special emphasis on the years 2020 (when the government managed to stay €327 million below forecast in the annual interest account) and 2021 (€323 million less than budgeted).
Last year, Medina’s OE ended with 240 million euros less in interest costs.
Since 2019, the Portuguese debt service has been clearly declining.
Before the year of the historic budget surplus achieved during Mário Centeno’s apprenticeship in Finance, nominal debt (in absolute terms) reached an all-time high of €8.4 billion. It has been on a steady decline since then, ending at €6.6 billion in 2022, according to the most recent figures from the Directorate-General for Budget.
Race to get off the debt podium
This was decisive for the government to achieve a record debt reduction, in an effort to get the country out top 3 European market, which it has shared for years with Greece and Italy.
Last week, it was learned that the government debt-to-GDP ratio, measured as a percentage of gross domestic product (GDP), recorded the largest decline in 2022 in the Bank of Portugal’s series, dating back to 1995.
According to the central bank controlled by Mário Centeno (the entity responsible for calculating government debt), the weight of total debt fell by the equivalent of a whopping 10.9% of GDP to 114.7% last year, reported the DV.
That is, the government has managed to more than completely reverse the increase in debt accumulated with the last two crises (the pandemic and the inflationary crisis, which has not yet ended).
However, it is now known, after four consecutive years of interest rate cuts, that time will be over.
If the forecast of the new OE2023 is correct, this year, with the ECB strongly raising interest rates across the board to combat very high inflation in the Eurozone, the government should face a very marked deterioration in debt service: According to DV accounts based on OE data, it should rise 7.7% to around €7.1 billion.
Source: DN
