The national debt, which accounts for 99% of the total government debt, remained virtually unchanged in July compared to the same period last year, signs of stabilization lasting about ten months. The average growth rate is about 0.4%.
It is something unprecedented in the history of Portugal in the euro. The debt has always risen sharply. The monthly (annual) increase in indebtedness since 1998 is almost 8%, shows calculations of the long series of IGCP (the agency that manages the Treasury and the debt), republished by the Bank of Portugal.
In any case, if the year ended, the ratio would still be higher than the ratio predicted by the government in the April stability program. Eventually this will not happen.
The growth of the economy may be slightly better, and further payments to the International Monetary Fund (IMF) will be studied later this year, as Cash Live (DV) reported on 11 August.
According to IGCP data, the Portuguese taxpayers currently owe 244.6 billion euros to creditors, a figure that represents an increase of only 0.2% in year-on-year terms.
According to data from the same agency and the Banco de Portugal series, the debt has evolved very slightly since last October (at an average monthly rate of 0.4% in the 10 months we are looking at). In the immediately preceding 10 months the average growth was 4.3%, or ten times as high.
A recent phenomenon
Debt stabilization in nominal terms is a recent phenomenon and is well explained by factors already mentioned, such as the reduction of the deficit and fees to the IMF.
Since Portugal entered the euro zone in 1998, the national debt has always grown and has only quadrupled (year-on-year). The first decline was in February 2016 (-0.8%), the second in February of this year (-0.1%) and the third decrease in June (-0.4%).
With just these three breaks in growth, the national debt has more than quadrupled in these two decades of the eurozone since 1998.
Ratio declined only seven times since joining the euro
The behavior of the gross domestic product (GDP) ratio, the shortest reading indicator shortly after the nominal deficit and the structural deficit, was also explosive. When Portugal joined the euro zone, it had a debt of 51.8% of GDP. At the end of 2017 it had 125.7%. More than the tax doubled.
In two decades the debt ratio fell seven times. Between 1997 and 2000; in 2007, 2015 and 2017.
Further reduction is expected this year. The consolidated debt of the Maastricht Treaty (State and the rest) set by the Bank of Portugal amounted to 246.7 billion euros at the end of June.
Since the government expects a nominal GDP of 200.4 billion euros this year, this means that the ratio could drop to 123.1% in 2018. It will therefore be the eighth debt reduction with more than 20 years of monetary union. The purpose of the stability program is 122.2%.
In any case, the Portuguese debt remains the largest in Europe (after Greece and Italy). It is also the largest in the developed world.
Paying the IMF helps
One of the pieces that can help to reduce the debt ratio and the stock is to advance in advance to the IMF, the highest creditor of the Troika.
Portugal still owes 4.7 billion euros to the fund after it had repaid 10 billion in the past. But this year it still paid 800 million, with the money collected (deposits) continuing.
Moreover, the economy can run better than expected, making the ratio easier.
Finally, there is budget implementation, which may also result in a lower deficit than is estimated. Less deficit means that Portugal needs to borrow less to pay the difference between income and expenditure. As far as interest rates are concerned, these savings seem obvious.
New debts issued this year were contracted at a weighted average interest rate of 1.9%, the lowest ever.
Interest savings will be the big if not the biggest lever to reduce the government deficit this year. Moreover, the expected decline in debt service will be most pronounced since Portugal joined the euro (in 1997/1998) and one of the largest in Europe in 2018.
According to calculations by the DV on the basis of the stability program, Mário Centeno can benefit from a saving of almost 500 million euros in interest. They will be 6% less than in 2017, reducing the importance of gross domestic product (GDP) to 3.5% (still around € 7 billion debt).
This figure translates into an annual reduction of one-tenth of GDP, and it is necessary to go back to 1998 to find a larger one. But 20 years ago times were different, they were easier; and the debt was four times lower than the current one.