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Portugal Trying to Narrow Budget Deficit

Portugal Trying to Narrow Budget DeficitPortugal Trying to Narrow Budget Deficit

The Portuguese government aims to narrow its budget deficit to 1% of gross domestic product in 2018 as the economy is set to grow for a fifth year.

The deficit will be 1.4% in 2017, the finance ministry said late on Friday in a statement about the 2018 budget proposal. The debt ratio is forecast to drop for a second year to 123.5% of GDP in 2018 from 126.2% in 2017, Bloomberg reported.

Its  budget includes an increase in the number of income tax brackets to seven from five as the government tries to reduce the tax burden on some earners. It plans to raise taxes on certain packaged foods that contain high levels of salt, including biscuits and potato chips. Finance Minister Mario Centeno said he estimates the government will get €500 million ($591 million) of dividends from the country’s central bank next year.

Tourism and exports have been boosting the country’s economy and helping the minority Socialist government manage the budget deficit, which last year was the narrowest as a percentage of GDP in four decades of Portuguese democracy. Prime Minister Antonio Costa has reversed state salary cuts faster than the previous administration proposed, while raising indirect taxes.

Economic growth is now projected to slow to 2.2% in 2018 from 2.6% this year as exports decelerate, while the unemployment rate is forecast to drop to 8.6% next year from 9.2% in 2017, Centeno said.

Private investment is seen rising 5.9% next year, while exports are set to grow by 5.4%. Public investment is also set to grow next year, by 40%, to €4.5 billion, after many years of public sector constraint.

Portugal’s improving outlook led rating agency Standard & Poor’s last month to upgrade Portugal’s creditworthiness to investment grade, taking it out of ‘junk’ status for the first time in five and a half years.

“This growth in jobs and an increase in average wages are compatible with gains in competitiveness,” Centeno told reporters in Lisbon.

An initial vote on the budget is scheduled for Nov. 3. Costa’s minority government took office at the end of 2015 and has been supported in parliament by the Left Bloc, Communists and Greens, which hadn’t followed the moderate Socialists in backing European budget rules in the past.

Portugal’s 10-year bond yield was at 2.3% on Friday, down from 3.9% six months ago. It peaked at 18% in 2012 at the height of the euro region’s debt crisis.

 

 

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