Council Opinion of 12 February 2002 on the updated stability programme for Portugal, 2001 to 2005
Date: 2002-02-12
Institutions: Council of the European Union
Subjects: Portugal, economic stabilisation

C 51/8

EN

Official Journal of the European Communities

26.2.2002

COUNCIL OPINION

of 12 February 2002

on the updated stability programme for Portugal, 2001 to 2005

(2002/C 51/07)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July
1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic
policies (1), and in particular Article 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 12 February 2002 the Council examined the updated
stability programme for Portugal which covers the period
2002 to 2005. The updated programme projects general
government finances to improve from a deficit of 2,2 % of
GDP in 2001 to a balanced position in 2004, with a small
surplus expected in 2005. The government gross debt
is
expected to decrease from 55,9 % of GDP in 2001 to 51,9 %
the new update broadly
in 2005. The Council notes that
complies with the requirements of
the revised (cid:145)code of
conduct on the content and format of stability and converge
programmes (2)(cid:146).

The Council notes that the estimated deficit outcome for 2001
(2,2 % of GDP) is clearly higher than projected in the January
2001 update (1,1 % of GDP). The Council acknowledges that
this
important nominal divergence is partly due to the
slowdown in the economy, with 2001 real GDP growth
the
around 1,25 percentage points below projections of
January 2001 update of
the
the programme. However,
Council also notes that lower growth can explain only a part
of the shortfall relative to the target. Factors not related to the
growth slowdown contributed to this, notably an underesti-
mation of the revenue losses implied by the reform of direct
taxes implemented in 2001 and lower-than-projected efficiency
gains in tax collection and administration, as well as less
favourable developments in current primary expenditure. The
Council acknowledges that the Portuguese government took, in
a corrective budget adopted in June 2001, measures with a
view to curtailing expenditure growth. These measures, which
amounted to 0,6 % of GDP were, however, not sufficient to
offset the shortfall in tax revenues in order to meet the deficit
target set in the previous update of the programme.

(1) OJ L 209/1, 2.8.1997, p. 1.
(2) Revised Opinion of the Economic and Financial Committee on the
content and format of stability and convergence programmes,
endorsed by the Ecofin Council on 10.7.2001.

scenario of

two years of

The baseline macro-economic
the updated
programme expects output growth to accelerate from 1,75 %
in 2002 to 3 % in the last
the programme,
yielding annual average growth of some 2,5 %. This seems
realistic in view of the current imbalances in the Portuguese
economy, with the necessary adjustment process likely to
dampen output growth in the medium term. Given the
strong rise in unit labour cost in recent years and its adverse
effects on the external competitiveness of
the Portuguese
economy, the needed increase in export growth is not likely
to be strong enough to make up for the shortfall in domestic
for these reasons, the
demand. The Council considers that,
cautious
the
medium-term outlook for the Portuguese economy appears
appropriate.

the programme

taken by

regarding

line

The Council notes that the Portuguese authorities maintain
their intentions to balance the budget by 2004, as planned
in last year’s update and as recommended in the broad
economic policy guidelines.
In cyclically adjusted terms the
government accounts would move into a small surplus in
2004. Portugal would thus comply with the requirements of
from 2004 on. The Council
the stability and growth pact
welcomes the confirmation of a balanced budget target for
2004. While acknowledging that achieving a balanced budget
the Council
target
Portuguese
considers
government to pursue it with determination. Once economic
recovery is established,
the Portuguese government should
strengthen its efforts to move rapidly towards its medium-term
objective of a zero deficit in 2004. This will require strict
the 4 %
respect
capping rule for growth of nominal current primary expen-
diture in general government, and may also require additional
discretionary measures.

in 2004 requires a considerable effort,
the
and

for 2003 and 2004 of

in the budgets

it necessary

encourages

to balance or

The Council notes that
the budgetary outcome for 2001
departed from the Portuguese budgetary path towards a
(cid:145)close
in surplus(cid:146) position. The Council
welcomes the intentions of returning to such a path in 2002
and considers that the budgetary objective for that year must
be met. The Portuguese government should closely monitor
its
budgetary developments in 2002.
budgetary plans for this year carefully in order to secure an
improvement in the deficit. Therefore, any measures likely to
lead to a further deterioration in the government deficit should
be avoided, and any revenue shortfall other than explained by
slower than expected economic growth should be compensated
by additional measures. Given that Portugal has not yet
achieved a sufficient safety margin against breaching the 3 %
of GDP deficit threshold, deviations from the objective must be
addressed in good time.

It should implement

26.2.2002

EN

Official Journal of the European Communities

C 51/9

a number of

The Council urges the Portuguese authorities to ensure strict
sectors of government.
budgetary implementation for all
Moreover,
reforms have been
announced in the programme update, particularly in some
areas with a direct impact on public finances, whose timely
and determined implementation will be paramount
for a
successful
the budgetary consolidation
strategy.

implementation of

important

The Council notes that the debt ratio remains clearly below the
60 % ceiling, but has been revised upwards throughout the
programme period. Only part of
revision can be
explained by the developments of the government deficit and
GDP growth. The Council
invites the authorities to provide
more detailed information on financial operations in future

this

programme updates in order to allow a better understanding
of debt developments.

the

contribution

the sustainability of government
The Council notes
that
the budgetary
finances should be strengthened in light of
costs of ageing populations. If debt reduction is to make a
noticeable
of
towards
government finances, the target of a balanced budget position
by 2004 must be reached. In addition, structural reforms are
the
necessary to strengthen the financial
pension system. The Council notes with satisfaction that the
reform of the pension system recently agreed by the social
partners goes
in the right direction. The main challenge
facing Portugal is to complete the process of pension reform
and to continue with the reforms of the health-care sector.

sustainability of

sustainability

COUNCIL OPINION

of 12 February 2002

on the updated stability programme of Spain, 2001-2005

(2002/C 51/08)

THE COUNCIL OF THE EUROPEAN UNION,

theless more
complete
projections would have been desirable.

information regarding

long-term

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July
1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic
policies (1), and in particular Article 5(3),

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

The Council notes with satisfaction that implementation of the
previous update has been broadly on track despite weaker
growth. After a deficit of 0,3 % of GDP in 2000, the target
of a general government balanced budget in 2001 is expected
to have been reached and the debt
ratio objective over-
achieved. The achievement of the fiscal targets for 2001 was
helped by stronger than planned containment of expenditure
and higher than expected nominal GDP. Taking into account
the worsening in the international environment, the update
centrally projects GDP growth slowing to 2,4 % in 2002 but
from 2003.
to resume at a 3 % rate, close to potential,
the
Although somewhat optimistic
medium-term outlook is plausible, given recent performance
and the ongoing catching-up process. The inflation projection
also seems attainable, helped by the recent agreement among
social partners aimed at wage moderation, though it would be
advisable to end indexation in wage bargaining in line with last
year’s Council Opinion.

in the

term,

short

On 12 February 2002 the Council examined Spain’s updated
stability programme covering the 2001-2005 period. The
information provided in the updated programme is broadly
in line with the revised (cid:145)Code of conduct on the content and
format of stability and convergence programmes(cid:146) (2). Never-

(1) OJ L 209, 2.8.1997.
(2) Revised Opinion of the Economic and Financial Committee on the
content and format of the stability and convergence programmes,
endorsed by the Ecofin Council on 10.7.2001.

Budgetary consolidation for the period 2002-2005 is based on
primary current expenditure restraint and lower
interest
charges while government investment is set to increase and
the tax burden to moderate slightly. Despite the current
economic slowdown, the update extends a balanced budget
target
to 2002 (and 2003) and targets small surpluses in
2004 and 2005, of 0,1 % and 0,2 % of GDP respectively. The
debt ratio is set to continue declining, reaching 50 % of GDP
by 2005.