LISBON: Portugal’s public deficit shrank by more than 25 percent in the first half of the year, and the left-leaning government said on Monday that the reduction in the deficit so far this year was better than envisaged in the budget thanks to economic growth and hiring. The country faces possible European sanctions after overshooting last year’s deficit target, and Brussels has been doubtful that this year’s goal of a shortfall of no more than 2.2 percent of GDP can be reached without additional budget measures.
The government has been adamant that no such measures will be needed and has said it has a budget cushion worth 0.3 percent of GDP to guarantee that this year’s fiscal commitments are met if economic growth underperforms its expectations.
“The deficit improvement in the first half by far exceeds the numbers envisaged in the 2016 budget. The economy and the labour market have shown signs that underpin the favourable evolution of tax and contributive revenues,” the finance ministry said in a statement. The public administration gap narrowed to around 2.87 million euros in January-June as revenues rose 2.9 percent, while spending was practically unchanged, it said.
The primary balance, which excludes debt costs, was a surplus of 2.12 billion euros, up sharply from 878 million a year earlier. The government took over in late 2015 and started reversing austerity policies of the previous administration. It has promised Brussels it will cut the budget deficit mainly thanks to more disposable income made available to the population that it says should boost consumption.
But while the government projects growth of 1.8 percent, most economists expect a much lower expansion around 1 percent. Last year Portugal cut the deficit to 4.4 percent from 7.2 percent in 2014, but it failed to reach its target of around 3 percent due to Lisbon’s second bank rescue in as many years. A meeting of European Union finance ministers is expected to decide on sanctions for Portugal and Spain this week.
