Portugal has emerged as a standout in the European Union (EU), managing to achieve a rare balance of high public debt alongside a structural budget surplus. In a recent report from the European Fiscal Board (EFB), an independent advisory body to the European Commission, Portugal was recognized as an exception among member states with high levels of debt. Unlike many of its counterparts, Portugal managed to improve its fiscal standing without increasing its structural deficit.
Positive Fiscal Performance Amid High Debt
The EFB’s annual report for 2023, based on final figures from the year, highlighted Portugal’s achievement in maintaining a structural surplus, even as other EU countries with high debt saw their fiscal health deteriorate. Many EU member states have struggled to control their underlying structural deficits, but Portugal has bucked this trend by maintaining fiscal discipline.
The European Commission’s latest assessments did not raise concerns about Portugal’s budgetary situation. Instead, it praised the country’s ability to stabilize its economy and reduce its vulnerabilities, especially regarding high levels of private, public, and foreign debt. Portugal’s improved fiscal management marked a significant departure from its previous years of warnings and fiscal imbalances flagged by the Commission.
From Deficit to Surplus
One of the most notable achievements in Portugal’s fiscal journey is its transition from a budget deficit of 0.3% of GDP in 2022 to a budget surplus of 1.2% in 2023. This turnaround is even more impressive when considering the nation’s public administration debt, which fell from 112.4% of GDP at the end of 2022 to 99.1% by the close of 2023.
This positive fiscal performance has allowed Portugal to exit the European Commission’s list of macroeconomically imbalanced nations, a significant milestone that the country achieved in June 2023. The reduction in debt vulnerabilities is expected to continue, helping the country stay on a path of economic stability.
Growth Projections and Future Outlook
Looking ahead, the Portuguese government remains optimistic about its economic trajectory. Earlier this month, government officials projected that the economy would grow by 2% in 2025. In terms of fiscal forecasts, they expect a budget surplus of 0.3% in 2024 and 0.2% in 2025. These projections, while more modest than the 2023 surplus, indicate a continued commitment to fiscal responsibility.
Despite these gains, Portugal still faces challenges associated with managing its high debt load. However, the country’s ability to maintain a surplus even in the face of high public debt suggests that its current fiscal policies are sustainable and effective.
Broader EU Context: Deficit Procedures for Seven Member States
While Portugal’s fiscal management has drawn praise, the broader EU landscape presents a different picture. In June, the European Commission took action by launching excessive deficit procedures against seven countries: France, Belgium, Italy, Poland, Hungary, Slovakia, and Malta. These countries failed to address the withdrawal of targeted and untargeted energy support measures, leading to hidden expansions in underlying spending. The Commission noted that these nations had high levels of debt and unsustainable fiscal paths, making them a concern for the EU’s overall financial health.
In contrast, Portugal had been on a similar path of risk due to its energy support measures in 2022. However, the country successfully pivoted in 2023, thanks to the Commission’s updated assessment methodology and Portugal’s fiscal adjustments. This change helped the nation avoid being included in the list of member states facing excessive deficit procedures.
A Model for High-Debt Countries
Portugal’s fiscal journey offers valuable lessons for other high-debt EU countries. Its ability to reduce its debt while simultaneously achieving a budget surplus underscores the importance of targeted fiscal policies and disciplined economic management. Portugal’s recent success suggests that even countries with high debt can turn their fiscal situations around with careful planning and prudent budgetary measures.
As the EU continues to monitor the fiscal health of its member states, Portugal’s performance will likely serve as an encouraging example of how to navigate the delicate balance between managing debt and achieving economic stability. For now, the country remains a fiscal outlier, demonstrating that even in challenging economic conditions, responsible financial management can lead to positive outcomes.
With its current trajectory, Portugal is well-positioned to continue reducing its debt and maintaining fiscal stability in the years to come.
