Portugal eyes small budget surplus in 2024 despite slowing growth

By Sergio Goncalves

LISBON (Reuters) – Portugal unveiled its draft 2024 budget on Tuesday, projecting a surplus of 0.2% of GDP despite a further economic slowdown to 1.5% from this year’s expected 2.2% amid high interest rates and slowing exports to key trading partners in Europe.

This year, the government now expects a surplus of 0.8%, Portugal’s second in almost five decades after a 0.1% surplus in 2019, and a huge improvement on its earlier forecast of a 0.4% deficit. Last year, the country had a deficit of 0.4% of GDP.

The document that Finance Minister Fernando Medina submitted to parliament, where the ruling Socialists have a working majority, put the public debt ratio next year at 98.9% of GDP, down from this year’s 103%, which would be the first time it drops below the 100% mark since 2009.

In the document, the fiscally frugal government said it will proceed with the “progressive and considered assessment of emergency support measures” for the population struggling with high inflation and interest rates, and reiterated “the commitment to responsible public accounts”.

The European Union absorbs around 65% of Portuguese exports of goods and services and this year, Portugal is already feeling the negative impacts of a slowdown or recession in some of its main EU trading partners, despite tourism being at record highs.

The government expects exports – which account for more than 50% of GDP – to grow just 2.5% in 2024 after 4.3% this year.

With the help of EU funds, investment is projected to rise by 4.1% next year after an increase of 1.3% in 2023.

The government will reduce intermediate income tax rates for the middle class, with a budget cost of 1.3 billion euros ($1.38 billion), and exempt young people entering the job market from income tax.

Opposition parties have criticised the government for failing to redistribute large additional revenues from inflation, especially with the value added tax, to families hit hard by rising costs of living.

But the government argues that, especially amid an adverse external environment, it must stick to budgetary prudence and keep reducing the still high public debt, on which the country nearly defaulted in 2011 and had to be rescued in a multi-billion-euro international bailout.

“Portugal can address the challenges it faces in the short and medium term” with this budget, Medina said. Inflation in Portugal is expected to slow to 3.3% next year from this year’s 5.3%.

($1 = 0.9439 euros)

(Reporting by Sergio Goncalves; editing by Andrei Khalip and Sharon Singleton)