Resisting pressure to increase spending and investing in structural reforms that boost growth are two of the main challenges that the finance minister who takes office today will face, according to economists contacted by Lusa.
The new Finance Minister, Joaquim Miranda Sarmento, inherits from his predecessor Fernando Medina a historic budget surplus of 1.2% of Gross Domestic Product (GDP), a debt ratio below 100% of GDP and the country’s ‘A’ rating, but also some challenges.
“The new minister’s biggest problem will be to keep control of the accounts, while addressing the imbalances left by the recent strategy,” predicts economist João César das Neves, speaking to Lusa, considering that it will be challenging to “maintain budgetary rigor in a social climate that, after eight years, is already strongly hostile to the right accounts.”
For the professor at the Catholic University, “Portugal continues to have a serious problem with its public finances, which requires structural reforms that the previous government never got around to”.
“The latter, having the merit of making the budgetary problem a priority, preferred to squeeze the economy with taxes and the state apparatus with cuts in investment, creating a strong social repudiation of this strategy,” he argues.
According to the economist, this can be seen in the “demands for a reduction in the tax burden, so that the economy can return to significant growth, but which are accompanied by various demands for public spending to satisfy powerful social groups”.
For his part, Pedro Braz Teixeira, director of the studies office of the Forum for Competitiveness, points out that the main challenge is to “resist pressure to increase spending and cut taxes”.
“Before the elections there was a real ‘highest bidder’ auction and the government’s political fragility creates the prospect of early elections, generating pressure within the executive to resort to electioneering policies,” he points out.
According to Pedro Braz Teixeira, “it will be necessary to put the brakes on a wide range of demands and one possible way forward will be to grant gradual increases, spread over several years, in order to meet the various demands without jeopardizing the health of public accounts.”
“You could even create a clause depending on economic growth. If the economy grows more than a certain threshold, you can speed up the response to claims,” he argues.
The economist also believes that Miranda Sarmento’s challenges will be to implement “growth-promoting structural reforms”, as the PSD has presented several proposals to this effect, and “to promote reforms in public spending that increase its efficiency (achieving equivalent results at a lower cost), in particular taking advantage of the funds from the Recovery and Resilience Plan (PRR) earmarked for the digitalization of the Public Administration”.
Pedro Braz Teixeira also points to reflection on public investment as another of the challenges, justifying the fact that its execution has been “far below the budget” and has been dominated by “very poor strategic choices”.
João César das Neves also lists as challenges “new financial impositions due to growing problems, ranging from the need for military rearmament in the face of war threats to the energy and digital transitions”.
“Adding to this the parliamentary fragility of the executive, we can say that the next minister has an impossible mission,” he predicts.
Prime Minister Luís Montenegro and the ministers of the XXIV Constitutional Government will be sworn in today and the secretaries of state two days later.
The economist and PSD parliamentary leader, Joaquim Miranda Sarmento, was the name chosen by Luís Montenegro for the post of Minister of State and Finance, after having coordinated the current PSD president’s motion for 2022.
Miranda Sarmento, 45, was president of the National Strategic Council in the previous PSD leadership of Rui Rio, who during the campaign for the 2019 legislative elections called him “Centeno of the PSD”, in an allusion to the then finance minister of the PS government, now governor of the Bank of Portugal.
An economic advisor during the second term of former President Cavaco Silva, he remained at the forefront of politics during the transition between Rio and Luís Montenegro and then took over the presidency of the PSD parliamentary caucus, a position he has held since July 2023 until now.
