Nota Fitch sulla bozza di bilancio 2017.
Fitch Ratings-London-25 October 2016: Portugal's draft budgetary plan for 2017 underscores the government's commitment to fiscal consolidation, but does not fully address the fiscal risks posed by weak growth and legacy problems in the financial system, Fitch Ratings says.
The draft plan submitted to the European Commission last week as part of its budgetary surveillance system targets a general government budget deficit of 1.6% of GDP in 2017, down from a forecast 2.4% in 2016. The reduction is achieved both by increasing revenues (by 0.5pp of GDP) and cutting expenditure (by 0.4pp). The plan also envisages a reduction in the structural budget deficit by 0.6% of GDP in 2017 to 1.1%, consistent with EU fiscal rules.
The plan accords with our view that the Portuguese authorities will continue to narrow the budget deficit, despite the anti-austerity rhetoric of the government and some high-profile policy measures such as increasing public-sector pay and a hike in pensions.
The draft budget is also more realistic about the trends in the very high level of general government debt, which is projected at 128.3% of GDP at end-2017, compared to 122.3% in the April 2016 Stability Programme. The difference is explained by the inclusion of EUR2.7bn as part of the capitalisation of Caixa Geral de Depositos and the exclusion of potential windfall gains from the sale of the financial assets of Banif and Novo Banco.
Overall, the plan extends the minority Socialist Party government's track record of prudent fiscal policy-making. The risk of political clashes between the Socialists and the more radical Communist Party and Left Bloc parties appears to have receded significantly, assuring more policy stability.
The biggest risk to fiscal consolidation is subdued growth, as this weighs heavily on revenue intake. The 2017 budget plan balances deficit reduction with measures to stimulate growth, including some tax cuts and new social benefits. But while this may support private consumption, it does little to incentivise investment, which is struggling. Moreover, prospects for the banking sector remain weak. The 2017 budget plan says that the government is examining "a systemic solution" to cleaning up bank balance sheets that would be "attractive to private investors," but no details are given.
Lower growth than originally forecast has already seen the government increase its 2016 deficit forecast to 2.4% of GDP from 2.2%. We maintain a more cautious outlook and expect the deficit to end at 2.7% this year.
Portugal's 'BB+'/Stable sovereign rating is constrained by high debt and weak growth.