The budget surplus achieved in the first quarter of the year was positive, but it should be interpreted with “prudence,” warns the Technical Budget Support Unit (UTAO), highlighting the risks involved in its execution.
In the report published today on Public Administration Accounts: January to March 2025, the UTAO notes that “the budget balance of the Public Administrations (PA) in national accounting was slightly surplus (0.2% of GDP), driven by the surplus in the Social Security Funds subsector.”
The unit, currently without a coordinator following the departure of Rui Baleiras, also highlights that in the last 17 years, between 2008 (when the statistical series began) and 2025, there have been only two first-quarter budget surpluses, in 2023 and 2025.
This result was due to a 7.8% growth in revenue (supported by tax revenue and social contributions) “at a level above that forecast for the year as a whole (+7.4) and surpassing the increase of +6.4% in expenditure and in nominal GDP (5.1%),” explains the UTAO.
Despite these positive data, they should “be interpreted with prudence,” as there are “predominantly downside budgetary risks” to the budget execution.
These risks are apparent, on one hand, at the international level, where there remains a “high degree of uncertainty regarding the evolution of geopolitical and commercial tensions.”
On the other hand, nationally, “it is important to monitor the implementation of the Recovery and Resilience Plan (PRR), the costs arising from the adoption of new policy measures decided by the new Government, and the increase in defense spending aimed at achieving, by 2025, the goal of allocating 2% of GDP to Defense according to the “NATO criterion,” which will have an impact for the rest of the year,” states the UTAO.
However, there are also some factors that could help budget execution, as “the balance could be positively influenced by extraordinary revenues exceeding estimates, such as dividends from Novo Banco.”
In this scenario, “a reliable forecast of the budget result to be achieved at the end of 2025 will depend on the evolution of the external and internal components, affecting budget execution in the coming quarters,” indicates the UTAO.
The Government remains confident in a surplus of 0.3% of GDP this year, while the Public Finance Council estimates a zero balance, and the Bank of Portugal even projects the possibility of a deficit of 0.1% of GDP.
