By Sergio Goncalves
LISBON (Reuters) – Portugal’s government can return to a balanced budget between 2022 and 2023, if it wants, taking advantage of a robust economic recovery from the COVID-19 pandemic, central bank Governor Mario Centeno said on Wednesday.
Centeno said last year’s budget gap could be “very close to” and possibly lower than 3% of gross domestic product.
The government, which controls spending and revenue and has the final say on the matter, has a more reserved view, with Finance Minister Joao Leao predicting earlier the 2021 deficit would have settled “slightly below” the targeted 4.3%.
The Finance Ministry declined to comment on Centeno’s remarks.
“In 2022, the deficit meets the arithmetic conditions to be below 1% … and the country is in a position to resume, between 2022 and 2023, the budget balance it had before the pandemic crisis,” Centeno said in a speech published on the central bank’s website.
Parliament rejected the 2022 budget plan in October, triggering a snap election, which returned Socialist Prime Minister Antonio Costa to power on Jan. 30, this time with a majority needed to pass legislation. He is yet to announce a new government and present its budget bill.
The Bank of Portugal expects economic growth to accelerate to 5.8% this year from 4.9% in 2021, and Centeno said economic activity should return to pre-pandemic levels in the first quarter.
The country achieved its first budget surplus in 45 years of democracy in 2019, equivalent to 0.1% of GDP, but in 2020 the deficit ballooned to 5.8% due to measures to help families and companies through the pandemic, while the economy slumped 8.4% in its worst contraction since 1936.
Centeno said resuming the path of public debt reduction, supported by a credible budget consolidation plan, was “the biggest challenge,” but added “we already know the way to go, we have already started it, we cannot hesitate.”
Public debt soared to a record 135% of GDP in 2020 and the government expects it to have dropped to 127% in 2021.
(Reporting by Sergio Goncalves; Editing by Andrei Khalip and Mark Potter)
