The Public Finance Board (CFP) has spared no criticism of the government’s economic forecasts and has warned of the risk of "significant deviation" in the Socialist Party’s deficit reduction plans.
In its Programme of Stability 2016-2020 analysis published on Tuesday, the Board notes that "the lack of details for a specific part of the measures for budget reduction gives rise to risks for the projections presented,” i.e. the plan lacks detail and the hoped projected results are just guesses.
The Board criticism does not stop at that overall warning, adding: "While the policy measures which have a negative direct impact on the budget are fully specified, of the measures with a positive impact on the balance more than half are not sufficiently detailed."
The CFP wants to know how the government will cut back on spending to lower the deficit in the time it has specified. The Board estimates that the cumulative impact of these unspecified measures is €825 million for 2017 and €2.165 billion in 2020.
"The lack of specification of policy measures underpinning the budgetary strategies and annual budgets has been a recurring failure in Portuguese fiscal policy," states the CFP report.
The independent body that provides support and information to MPs notes that the figures in the government’s 2016 forecast “have many risks."
One of the main ones is the over-spending on social security benefits, another is the return to a 35-hour working week for the Civil Service.
And so the report goes on, noting "significant shifts" in targets, “risk factors" and “special caution" and questions about projected growth rates for exports and investment.
Overall the CFP concludes that "the evolution of the budget balance by 2020 will fall short of the one presented by the Ministry of Finance" and that "the annual improvement in the stability programme 2016-2020 is below the minimum required by European and national rules."
On the revenue side the CFP says the forecasts are based on "unspecified measures, whose implementation may affect the whole macro-fiscal scenario," and annual tax increases that do not seem linked to economic activity.
There is worry about debt reduction from selling off Novo Banco and Octant, the holders of Banif’s bad debts, as both "carry the risk associated with the time and the sale value of these assets," i.e. they are both worth far less than the taxpayer was forced to shovel into them.
This brutally honest report will be dismissed by government and latched onto by detractors in the Eurogroup who are fully aware that Portugal’s economy is underwater, its debts are not repayable, overall borrowing keeps rising and the feel good factor carefully being developed by Prime Minister António Costa is based on political posturing rather than hard reality.
