Ratings agency Fitch is not in the business of cheering up the Portuguese government and today’s assessment of actions and events deemed harmful to the economy is no exception.
The long-awaited reduction in VAT for the restaurant sector is seen by the agency as a bad thing as it may impair the all important deficit reduction target for 2016.
It is not in the agency’s remit to look further ahead than its own spreadsheets and it forgets the VAT rise for this sector was short-term and, as it turned out, regrettable as the rise in VAT collected was swamped by the cost of businesses closures and the tens of thousands who lost their jobs, many ending up reliant on the state.
Other negative aspects of Portuguese life cited by Fitch were the return to a 35-hour working week and the recapitalisation of Caixa Geral de Depósitos, both of which justifiably cause worry.
In mid-August, Fitch maintained Portugal’s rating at 'BB +', which is still considered junk - but at least this is junk with a stable outlook.
The agency does not think that the government will come even close to achieving a deficit goal of 2.2% of Gross Domestic Product in 2016. In fact the only person who does is the prime minister who is ignoring weak economic growth, State over-spending and a collapse in exports to key markets.
Fitch does give the first six months of 2016 an OK review and considered that the budget execution until July shows "a relatively stable fiscal framework."
"Several factors, however, can complicate budgetary performance in the second half of 2016 and from then on," warned the cheery folk at Fitch, pointing out that the reduction of VAT in restaurants "may have an adverse impact.”
In this context, Fitch maintains a forecast for a deficit of 2.7% of GDP by the year end, but notes the elephant in the room named Caixa Geral de Depósitos - a financial black hole into which the government is determined to start shovelling more taxpayers’ money.
"Although the funds to recapitalise CGD come from the State, there is no clarity as to the ultimate impact that this injection will have on the deficit and the targets required by Brussels. What is true is that the recapitalisation will affect the state's financing needs which can lead to an increase in debt," - with this, few disagree.
But there is a magic wand apparently as the president of the Agency for Treasury Management and the Public Debt (IGCP), Cristina Casalinho, said that the recapitalisation of Caixa will have no impact on the State accounts this year, leading to the assumption that those in charge of Portugal's tattered economy simply will push the bad news into next financial year.
Fitch noted that nothing much had changed in Portugal's discredited banking sector with institutions suffering from self-inflicted poor quality assets due to exposure to a weak mortgage market and rising bad loans, especially in the business sector.
For 'exposure to the weak mortgage market' can be added the hundreds of thousands of repossessed negative equity properties that lie empty.
