“Maintaining the fiscal momentum beyond 2026 will require measures to offset the recent cuts in personal income tax [IRS] and corporate tax [IRC], which will have a lasting impact on the fiscal balance,” the IMF stated in a response sent to the Lusa agency.
According to the organization, “these measures should include reducing tax exemptions, improving the efficiency of public spending, and addressing the fiscal pressures arising from the aging population.”
In a report released in October, the IMF projected a surplus of 0.2% of GDP this year and a neutral balance next year, more pessimistic than the Government.
In previous forecasts, the IMF even predicted a budget surplus of 0.1% in 2026.
However, this is an exception, as most institutions monitoring Portugal’s economy point to a deficit next year.
In the projections released last month, the IMF also estimated that the Portuguese economy would grow 1.9% this year and 2.1% next year, more pessimistic than the Government, which in the State Budget points to growth of 2% and 2.3%.
In statements to Lusa, the IMF highlights that “Portugal’s economic performance since the pandemic has been remarkable.”
“The country achieved strong growth – above the eurozone average – and, at the same time, an impressive reduction in public debt by about 45% of GDP. Our baseline projection indicates the continuation of these trends, including the maintenance of a small budget surplus next year,” it states.
According to the institution, to “preserve fiscal stability and promote sustainable growth,” Portugal should “move forward with reforms to eliminate disincentives to business expansion – for example, the progressive corporate income tax [IRC] -, improve access to financing, address labor market duality, continue to progress in education outcomes, and simplify bureaucracy.”
Regarding the impact of the Recovery and Resilience Plan (PRR) in Portugal, the IMF notes its “important role” for public investment.
“So far, Portugal has achieved a fund disbursement rate above the EU average, and the implementation of PRR grants is well within reach,” it concludes, at a time when the country registers an execution of 40%, within a plan budgeted at 22.2 billion euros.
This position comes during the week the IMF releases a report on “How Can Europe Afford What It Can’t?” in which it warns the European Union that, given current community priorities, and “without immediate political action, public debt levels could more than double, on average, in European countries over the next 15 years.”
“This could lead to rising interest rates, further slowing already weak economic growth, and shaking market confidence,” it adds, pointing out that “both structural reforms and fiscal consolidation will be needed to achieve the difficult policy adjustment, with one-third of the effort coming from a set of moderate reforms and two-thirds from consolidation.”
