Portugal keeps focus on cutting deficit and debt

16 May 2022

Portugal will remain with its strategy of reducing its deficit and high debt levels to protect itself against additional rate hikes by the European Central Bank (ECB), according to the country’s finance minister.

Portugal is the EU’s third most indebted nation after Greece and Italy, and finance minister Fernando Medina said the possibility of ECB rate increases is “increasingly evident and will, in the long term, impact financing costs as Portugal refinances new debt.

“The goal of deficit and debt reduction aims to alleviate the burden of debt that is paid by all (citizens), reinforce (external) credibility and gain a safety margin for the difficult times ahead,” Medina told a parliamentary committee.

The Portuguese government forecasts the debt-to-GDP ratio, which at the end of last year stood at 127.4% following the all-time high in 2020 of 135.2%, will be at 120.7% at the end of 2022, Reuters reports.

In addition, the government forecasts the budget deficit will fall to 1.9% of GDP this year from 2.8% last year. Growth projections for this year are the same as 2021, at 4.9%, despite the impact of Russian’s invasion of Ukraine.

Medina stated that “Portugal exceeded all expectations” in the first quarter of the year, with GDP rising 11.9% compared to a year ago and 2.6% versus Q4 2021.

Portugal’s finance minister recognised the eurozone as a whole is growing at a “much slower pace”, along with the country’s largest trading partners Spain and Germany, and that “Portugal is not immune to this external environment.”

“But we have to take advantage of this better moment of the Portuguese economy to protect ourselves for the future and remove Portugal from the podium of the most indebted countries,” he went on to say.