The end of subsidies and a constrained budget gave Medina a surplus of 1.2% of GDP – public finances

Hey Historic budget surplus of 2.1% of the GDP achieved by the previous government in 2023 This is largely explained by the withdrawal of exceptional support and a “restricted” budget.. The conclusion is from the Council for Public Finance (CFP) and is contained in the analysis of the evolution of the budget of public administrations in 2023, which was released on Wednesday.

“The discretionary action of government budget policy, which is evaluated by The variation in the structural primary balance was responsible for the largest contribution (2.0 percentage points of potential GDP). Impact on improved budget positioning in 2023,” the CFP report states.

The entity led by Nazaré da Costa Cabral points out that to this development in the budget balance, “a decrease in structural primary expenditures (2.2 percentage points of potential GDP) contributed, which reflects, in its current component (1.9 percentage points), Withdrawal of emergency measures against Covid-19 and phasing out extraordinary support measures to counter rising inflation“Moreover, this improvement in the budget balance also benefited from Stopping financial support for companies in the aviation sector as part of the restructuring: TAP and SATA Air Açores.

After 2022, favorable economic developments and interest savings contributed the most to reducing the budget deficit CFP estimates that cyclical developments in the economy have continued to benefit the budget balance, but with a “much smaller contribution.” (0.1 percentage point of potential GDP). However, this development was not sufficient to “face the increase in interest rates by 0.2 percentage points of GDP.”

“The surplus of 1.2% of GDP achieved in 2023 is a natural result of the fiscal adjustment path that allowed… Eliminate the budget imbalance that occurred in 2020 due to the pandemic crisis“, the margin increased compared to the maximum of 3% of GDP for the deficit set by the EU Functional Treaty.” European budget rules, which were suspended due to the pandemic, will return from next year.

The CFP also states that “in the context of the phasing out of budget incentives and in a year in which the budget impetus granted through the risk reduction strategy increased, The budget policy stance proved constrained in 2023This guidance represents a change from the position taken in 2022, which the CFP considered “neutral.”