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Commission Opinion on the 2016 Draft Budgetary Plan of Portugal

05 February 2016

by eub2
— last modified 05 February 2016

The European Commission considers that the Portuguese government’s 2016 Draft Budgetary Plan is at risk of non-compliance with the provisions of the Stability and Growth Pact. In its Opinion adopted on 5 February, the European Commission therefore invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the Stability and Growth Pact.

1. What has the European Commission decided regarding Portugal’s Draft Budgetary Plan (DBP) for 2016?

The European Commission has completed its assessment of the Draft Budgetary Plan (DBP)for
Portugal, which was submitted on 22 January 2016. The Commission has
taken into account the additional structural consolidation measures
which the Portuguese authorities announced on 5 February.

The
Commission is of the opinion that the Draft Budgetary Plan of Portugal
is at risk of non-compliance with the provisions of the Stability and
Growth Pact.

In particular, the structural fiscal effort falls
short of the adjustment recommended by the Council on 14 July 2015. The
Commission invites the authorities to take the necessary measures within
the national budgetary process to ensure that the 2016 budget will be
compliant with the Stability and Growth Pact.

This Opinion is backed by a detailedstaff working document,which presents a more in-depth analysis of the DBP.

2. What happens next?

The
Eurogroup will discuss the Commission’s Opinion on the Draft Budgetary
Plan for Portugal. If invited to do so, the Commission can also present
its Opinion to the parliament of the Member State concerned and/or to
the European Parliament.

The Commission will reassess Portugal’s
compliance with its obligations under the Stability and Growth Pact,
including under the Excessive Deficit Procedure, on the basis of: the
budgetary outcome of 2015, once validated data for that year are
available this spring; Portugal’s forthcoming Stability Programme; and
the Commission 2016 Spring Forecast. The results of this assessment will
be reflected in a new decision under the Excessive Deficit Procedure in
Spring.

3. Detailed Assessment

3.1 In relation to the macroeconomic scenario:

The Commission assessed the macroeconomic scenario included in Portugal’s DBP on the basis of the Commission’s Winter Economic Forecast.
This Forecast, published on 4 February, already took into account the
initial DBP as submitted on 22 January. The Commission Winter Forecast
is less optimistic on the macroeconomic scenario than Portugal’s DBP. In
particular, the DBP forecasts real GDP growth in 2016 to be stronger
than the 1.6% forecast by the Commission..

3.2 In relation to the nominal deficit targets:

The nominal deficit target in the DBP is lower than the nominal deficit predicted in the Commission Winter Economic Forecast
(3.4% of GDP in 2016 in the Winter Forecast, i.e. 0.8% above the Draft
Budgetary Plan’s target). The difference is mainly due to different
macroeconomic forecasts as well as to a different assessment regarding
the expected yield of some fiscal consolidation measures.

 

3.3 In relation to the structural deficit targets:

Applying
established assessment principles, which were used also in the
assessment of the DBPs of all other euro area Member States, the
recalculated DBP showed a planned significant deviation from the
recommended structural effort. Following the DBP, the Portuguese
authorities submitted additional explanations and announced further
measures. After carefully assessing all available information, the
Commission is of the opinion that the DBP is at risk of non-compliance
with the requirements of the Stability and Growth Pact

3.4 In relation to public debt:

The
DBP, as submitted on 22 January, projects the debt-to-GDP ratio to be
on a downward path, expecting it to fall from 128.7% by the end of 2015
to 126% by the end of 2016. The Commission 2016 Winter Forecast projects
a slightly higher debt-to-GDP ratio of around 129% at the end of 2015,
followed by a slight decrease in 2016 to 128.5%. The difference compared
to the DBP reflects the projected increase in the Treasury’s cash
buffer, in combination with a higher general government deficit and
lower nominal GDP in the Commission 2016 Winter Forecast.

4. What were the requirements Portugal was supposed to comply with?

For Portugal, the relevant requirement is included in the Country-Specific Recommendation adopted by the Council on 14 July 2015 to “achieve a fiscal adjustment of 0.6% of GDP”, i.e. an improvement of the structural balance of this size.

5. What is the focus of the Opinion on the Draft Budgetary Plan for Portugal?

The
Opinion focuses on compliance with the Stability and Growth Pact. For
Portugal, the relevant target is the Country-Specific Recommendation
adopted by the Council on 14 July 2015 to “achieve a fiscal adjustment
of 0.6% of GDP”, i.e. an improvement of the structural balance of this
size. The Opinion takes into account the Commission 2016 Winter Forecast
and on that basis provides a risk assessment. The Opinion highlights
whether any measures will be needed to ensure compliance with the Pact.

Further information:

Opinion on the Draft Budgetary Plan for Portugal and Staff working document underpinning opinion

General questions on the Commission assessment of Draft Budgetary Plans

Article source: http://www.eubusiness.com/europe/portugal/budget-16

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