The third post-assistance programme monitoring mission report concluded that there are “significant risks to the implementation” of the 2016 state budget, especially in terms of the revenues forecast for indirect taxes, and correspondingly urged the minority Socialist Party-led government to draft a “contingency plan” for implementation “when there is evidence that the 2.2% state budget deficit target is not being met.”
The IMF details how this should “imply the reversal of some of the measures taken” especially the quarterly reduction in the civil service austerity wage cuts (due to be fully abolished in October) but also taking into account the cut applied to the IRS surcharge and the decrease in VAT levied on the restaurant sector.
Delay changes
According to the report such measures either “should be delayed until encountering sufficient budgetary scope” or the state should apply “other concrete proposals to reduce expenditure.”
The Washington-based institution highlighted the reforms needed to “contain the pressures” arising from the state sector salaries and pensions especially should the government opt to advance with the return to a 35-hour working week across the public sector.
Following its late January and early February visit to Lisbon, the International Monetary Fund had forecast a budget deficit of 3.2% of GDP and 2.8% next year off the back of growth of 1.4% and 1.3% in 2015 and 2016 respectively.
Now, taking into consideration the 2016 state budget, the IMF maintains its growth forecasts but has put the deficit at an improved 2.9% for this year while worsening its outlook for next year to 2.9%.