IMF sees Portugal budget surplus in 2020 despite slowing growth

IMF sees Portugal budget surplus in 2020 despite slowing growth

LISBON: Portugal should achieve its first budget surplus next year in at least 45 years, the International Monetary Fund projected on Friday, though it also predicted a sharper economic slowdown than the government’s own estimates.

Portugal, which was bailed out by the IMF and the European Union in 2011 after a debt crisis, has since slashed its deficit on the back of solid growth combined with fiscal discipline, and last year fully repaid the IMF loans ahead of time.

The IMF said in a report it expected the government to meet its budget gap target of 0.2 percent of gross domestic product this year, mainly through lower-than-budgeted capital investment and strong revenue, before posting a 0.1 percent surplus in 2020.

Lower interest paid on debt should support that improvement in the fiscal balance, “likely leading to a surplus in 2020, assuming unchanged policies”, it said.

But while the government forecasts economic growth to slow to 1.9 percent this year and then remain at this level in 2020, the IMF put the expansion at 1.7 percent and 1.5 percent respectively, “reflecting a less supportive external environment and moderating growth in domestic demand”.

Last year the Portuguese economy grew 2.2 percent, slowing from the previous year’s 2.8 percent, which was the strongest expansion since the turn of the century.

The budget deficit last year was 0.5 percent – the lowest since Portugal’s return to democracy in 1974.

Copyright Reuters, 2019