Municipalities increasingly pay suppliers later, record significant decline in budget surplus, CFP reveals – Executive Summary

The analysis of the 2023 local government results, released today by the Public Finance Council, reveals a scenario of a significant decline in the budget surplus.

According to the CFP, the local government has presented a surplus of only €24 million in 2023, a significant decrease compared to the €353 million recorded in 2022 and well below the forecast of €256 million in the 2023 state budget.

However, this analysis is limited by the lack of complete information, as data are only available for 300 out of 308 Portuguese municipalities, representing 98.8% of actual spending in 2019.

The report indicates that local government revenues grew by 8.7% (€904 million) in 2023, exceeding the 4.5% estimate in OE2023. This growth was mainly driven by increased transfers related to decentralized skills, which accounted for almost two-thirds of the revenue increase. However, municipal tax revenues grew by only 2.5%, well below the 12.5% ​​recorded in 2022.

On the other hand, expenditures increased by 12.3% (€1.2 trillion) in 2023, almost double the growth seen in the previous year. This increase was driven by higher initial and current capital expenditures, including a 13.5% increase in personnel expenses and a 12.1% increase in the purchase of goods and services. These differences partly reflect wage increases across all public administration workers and the decentralization of skills.

The economic classification of expenditures does not allow for the identification of expenditures financed by transfers from the Decentralization Finance Fund (FFD) specifically, making transparency and proper assessment of the decentralization process difficult. Although progress has been made in monitoring in 2023, it is not yet sufficient to conduct a full assessment.

CFP data also reveals evidence of an increase in unpaid expenditures in municipalities in 2023, in contrast to the downward trend in 2022. The average payment period (PMP) for municipalities increased to 23 days, although this comparison may be biased due to the lack of data from 34 municipalities.

The total municipal debt of 302 out of 308 municipalities decreased slightly from €3,570 million to €3,549 million. At least 12 municipalities were above the legal limit for total debt at the end of 2023, three fewer than in 2022. This decrease was made possible by a decrease in debt in 191 municipalities, which offset the increase in a further 111 municipalities.

“The CFP reaffirms that for the transparency of the financial and budgetary development of the subsector, it is essential that municipalities with missing information (and other local authorities and entities) provide it under the conditions provided by law and in a timely manner, in particular for Dghal. In the same sense, the obligation to publish financial statements and other economic and financial information on the relevant institutional websites contributes to this.”