Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Portugal
Date: 2024-06-19
Institutions: European Commission, Secretariat-General
Subjects: Portugal, budget policy, economic policy, economic recovery, economic reform, employment policy, energy policy, fiscal policy, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 19.6.2024  COM(2024) 622 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Portugal  {SWD(2024) 600 final} - {SWD(2024) 622 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic, social, employment, structural and budgetary policies of Portugal 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council 
of  29  April  2024  on  the  effective  coordination  of  economic  policies  and  on  multilateral 
budgetary surveillance and repealing Council Regulation (EC) No 1466/971, and in particular 
Article 3(3) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investment,  entailing  a  fiscal  impulse 
financed by the EU. In line with the European Semester priorities, it helps achieve the 
economic  and  social  recovery  and  implement  sustainable  reforms  and  investment,  in 
particular  to  promote  the  green  and  digital  transitions  and  make  the  Member  States’ 
economies  more  resilient.  It  also  helps  strengthen  public  finances  and  boost  growth 
and job creation in the medium and long term, improve territorial cohesion within the 
EU and support the continued implementation of the European Pillar of Social Rights. 

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2 
3 

OJ L 2024/1263, 30.4.2024 ELI: http://data.europa.eu/eli/reg/2024/1263/oj. 
OJ L 306, 23.11.2011, p. 25 ELI: http://data.europa.eu/eli/reg/2011/1176/oj. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
(OJ  L  57,  18.2.2021,  p.  17)  ELI: 
establishing 
http://data.europa.eu/eli/reg/2011/1176/oj. 

the  Recovery  and  Resilience  Facility 

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(2) 

(3) 

(4) 

(5) 

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The  REPowerEU  Regulation4,  adopted  on  27  February  2023,  aims  to  phase  out  the 
EU’s  dependency  on  Russian  fossil  fuel  imports.  This  would  help  achieve  energy 
security  and  diversify  the  EU’s  energy  supply,  while  increasing  the  uptake  of 
renewables,  energy  storage  capacities  and  energy  efficiency.  Portugal  added  a  new 
REPowerEU chapter to its national recovery and resilience plan in order to finance key 
reforms and investments that will help achieve the REPowerEU objectives. 

On  16  March  2023,  the  Commission  issued  a  Communication  on  the  ‘Long-term 
competitiveness of the EU: looking beyond 2030’5, in order to inform policy decisions 
and  create  the  framework  conditions  for  increasing  growth.  The  Communication 
frames competitiveness along nine mutually reinforcing drivers. Among these drivers, 
access to private capital, research and innovation, education and skills, and the single 
market  emerge  as  paramount  policy  priorities  for  reform  and  investment  to  address 
current productivity challenges as well as to build up the long-term competitiveness of 
the EU and its Member  States. On 14 February  2024, the Commission  followed this 
Communication  with  the  Annual  Single  Market  and  Competitiveness  Report6.  The 
report  details  the  competitive  strengths  and  challenges  of  Europe's  Single  Market, 
tracking yearly developments according to the nine competitiveness drivers identified.  

On 21 November 2023, the Commission adopted the 2024 Annual Sustainable Growth 
Survey7, marking the start of the 2024 cycle of the European Semester for economic 
policy  coordination.  The  European  Council  endorsed  the  priorities  of  the  survey 
around  the  four  dimensions  of  competitive  sustainability  on  22  March  2024.  On  21 
November 2023, on the basis of Regulation (EU) No 1176/2011, the Commission also 
adopted  the  2024  Alert  Mechanism  Report,  in  which  it  identified  Portugal  as  one  of 
the  Member  States  that  may  be  affected  or  may  be  at  risk  of  being  affected  by 
imbalances, and for which an in-depth review would be needed. On the same date, the 
Commission  also  adopted  an  opinion  on  the  2024  draft  budgetary  plan  of  Portugal. 
The  Commission  also  adopted  a  recommendation  for  a  Council  recommendation  on 
the economic policy of the euro area, which the Council adopted on 12 April 2024, as 
well  as  the  proposal  for  the  2024  Joint  Employment  Report  analysing  the 
implementation  of  the  Employment  Guidelines  and  the  principles  of  the  European 
Pillar of Social Rights, which the Council adopted on 11 March 2024. 

On  30  April  2024,  the  EU’s  new  economic  governance  framework  came  into  force. 
The  framework  includes  the  new  Regulation  of  the  European  Parliament  and  of  the 
Council  (EU)  2024/1263  on  the  effective  coordination  of  economic  policies  and 
multilateral  budgetary  surveillance  and  repealing  Council  Regulation  (EC)  No 
1466/97.  It  also  includes  the  amended  Regulation  (EC)  No  1467/97  on  the 
implementation  of  the  excessive  deficit  procedure  and  the  amended  Directive 
2011/85/EU  on  the  budgetary  frameworks  of  Member  States8.  The  objectives  of  the 

Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1) ELI: http://data.europa.eu/eli/reg/2023/435/oj. 
COM(2023) 168 final. 
COM(2024) 77 final. 
COM(2023) 901 final. 
Council  Regulation  (EU)  2024/1264  of  29  April  2024  amending  Regulation  (EC)  No  1467/97  on 
speeding  up  and  clarifying  the  implementation  of  the  excessive  deficit  procedure  (OJ  L,  2024/1264, 
30.4.2024,  ELI:  http://data.europa.eu/eli/reg/2024/1264/oj)  and  Council  Directive  (EU)  2024/1265  of 

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new  framework  are  public  debt  sustainability  and  sustainable  and  inclusive  growth 
through gradual  fiscal consolidation  as  well as  reforms  and investments.  It  promotes 
national  ownership  and  has  a  greater  medium-term  focus,  combined  with  more 
effective and coherent enforcement. Each Member State should submit to the Council 
and  to  the  Commission  a  national  medium-term  fiscal-structural  plan.  National 
medium-term  fiscal-structural  plans  contain  the  fiscal,  reform  and  investment 
commitments  of  a  Member  State,  covering  a  planning  horizon  of  4  years  or  5  years 
depending on the regular length of the national legislature. The net expenditure9 path 
in  the  national  medium-term  fiscal-structural  plans  should  comply  with  the 
requirements of Regulation (EU) 2024/1263, including the requirements to put or keep 
general government debt on a plausibly downward path by the end of the adjustment 
period  at  the  latest,  or  for  it  to  remain  at  prudent  levels  below  60%  of  GDP,  and  to 
bring  and/or  maintain  the  government  deficit  below  the  3%  of  GDP  reference  value 
over  the  medium  term.  Where  a  Member  State  commits  to  a  relevant  set  of  reforms 
and investments in accordance with the criteria set out in Regulation (EU) 2024/1263, 
the  adjustment  period  may  be  extended  by  3  years  at  most.  For  the  purpose  of 
supporting the preparation of those plans, on [21 June] 2024, the Commission is set to 
provide Member States with guidance on the content of the plans and the subsequent 
annual progress reports that they will need to submit and, in accordance with Article 5 
of Regulation (EU) 2024/1263, will transmit to them technical guidance on the fiscal 
adjustments  (reference  trajectories  and  technical  information,  where  applicable). 
Member  States  should  submit  their  medium-term  fiscal-structural  plans  by  20 
September  2024,  unless  the  Member  State  and  the  Commission  agree  to  extend  the 
deadline by a reasonable period of time. Member States should ensure the involvement 
of their national parliaments, and the consultation of independent fiscal institutions, of 
social partners and other national stakeholders, as appropriate. 

In 2024, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  The  full 
implementation  of  the  recovery  and  resilience  plans  remains  essential  for  delivering 
the policy priorities under the European Semester, as the plans help effectively address 
all  or  a  significant  subset  of  challenges  identified  in  the  relevant  country-specific 
recommendations  issued  in  recent  years.  The  2019,  2020,  2022  and  2023  country-
specific  recommendations  remain  equally  relevant  also  for  revised,  updated  or 
amended  recovery and resilience plans in  accordance  with  Articles  14, 18 and 21 of 
Regulation (EU) 2021/241.  

On 22 April 2021, Portugal submitted its national recovery and resilience plan to the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance with the assessment guidelines of Annex V to that Regulation. On 13 July 
2021,  the  Council  adopted  its  Decision  on  the  approval  of  the  assessment  of  the 

29  April  2024  amending  Directive  2011/85/EU  on  requirements  for  budgetary  frameworks  of  the 
Member States (OJ L, 2024/1265, 30.4.2024, ELI: http://data.europa.eu/eli/dir/2024/1265/oj). 
Net expenditure as defined in Article 2 of Council Regulation (EU) 2024/1263 of 29 April 2024 (OJ L 
2024/1263,  30.4.2024.  ELI:  http://data.europa.eu/eli/reg/2024/1263/oj).  Net  expenditure  means 
government  expenditure  net  of  (i)  interest  expenditure,  (ii)  discretionary  revenue  measures,  (iii) 
expenditure  on  programmes  of  the  Union  fully  matched  by  Union  funds  revenue,  (iv)  national 
expenditure  on  co-financing  of  programmes  funded  by  the  Union,  (v)  cyclical  elements  of 
unemployment benefit expenditure, and (vi) one-offs and other temporary measures. 

(6) 

(7) 

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(8) 

(9) 

recovery and resilience plan for Portugal10, which was amended on 17 October 2023 
following Article 18(2) of Regulation (EU) 2021/241 to update the maximum financial 
contribution for non-repayable financial support, as well as to include the REPowerEU 
chapter11. The release of instalments is conditional on a decision by the Commission, 
taken in accordance with Article 24(5) of Regulation (EU) 2021/241, that Portugal has 
satisfactorily  fulfilled  the  relevant  milestones  and  targets  set  out  in  the  Council 
Implementing  Decision.  Satisfactory  fulfilment  presupposes  that  the  achievement  of 
preceding milestones and targets has not been reversed. 

On  30  April  2024,  Portugal  submitted  its  2024  National  Reform  Programme  and  its 
2024 Stability Programme, in line with Article 4(1) of Regulation (EC) No 1466/97. In 
accordance with  Article  27 of Regulation  (EU) 2021/241,  the  2024 National  Reform 
Programme  also  reflects  Portugal’s  biannual  reporting  on  the  progress  made  in 
achieving its recovery and resilience plan.  
The Commission published the 2024 country report for Portugal12 on 19 June 2024. It 
assessed  Portugal’s  progress 
country-specific 
recommendations  adopted by  the Council  between 2019  and  2023 and  took stock of 
Portugal’s implementation of the recovery and resilience plan. Based on this analysis, 
the  country  report  identified  gaps  with  respect  to  those  challenges  that  are  not 
addressed  or  only  partially  addressed  by  the  recovery  and  resilience  plan,  as  well  as 
new  and  emerging  challenges.  It  also  assessed  Portugal’s  progress  on  implementing 
the  European  Pillar  of  Social  Rights  and  on  achieving  the  EU  headline  targets  on 
employment, skills and poverty reduction,  as well as progress in  achieving the UN’s 
Sustainable Development Goals.  

addressing 

relevant 

the 

in 

(10)  The  Commission  carried  out  an  in-depth  review  under  Article  5  of  Regulation  (EU) 
No 1176/2011 for Portugal. The main findings of the Commission’s staff assessment 
of  macroeconomic  vulnerabilities  for  Portugal  for  the  purposes  of  that  Regulation 
were  published  in  April  202413.  On  19  June  2024,  the  Commission  concluded  that 
Portugal is no longer experiencing  macroeconomic imbalances. In particular, Portugal 
has  made  significant  progress  in  reducing  vulnerabilities  related  to  high  private, 
government  and  external  debt,  which  are  expected  to  continue  to  recede.  After  an 
interruption  brought  about  by  the  COVID-19  pandemic  crisis,  private  sector  and 
government  debt  ratios  resumed  their  decline.  They  have  receded  substantially  since 
2021,  helped  by  strong  GDP  growth  and  a  recent  budget  surplus  in  the  case  of 
government debt. The clearly negative net international investment position (NIIP) has 
been  improving  substantially,  helped  by  marked  economic  growth  and  a  current 
account surplus, and its structure remains favourable in light of the high share of non-
defaultable  instruments.  Private  and  government  indebtedness  and  the  NIIP  remain 
elevated, but are projected to further recede in the future, despite nominal GDP growth 
becoming  less  supportive.  The  current  account  returned  to  a  surplus  last  year  and  is 
forecast to remain positive this year and next,  and a fiscal surplus has been attained. 
The increase in interest rates has put some pressure on indebted households and house 

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Council Implementing Decision of 13 July 2021 on the approval of the assessment of the recovery and 
resilience plan for Portugal (ST 10149/21; ST 10149/21 ADD 1; ST 10149/21 ADD 1 REV 1). 
Council Implementing Decision of  17 October 2023  amending the Implementing Decision of  13 July 
2021  on  the  approval  of  the  assessment  of  the  recovery  and  resilience  plan  for  Portugal  (ST 
13351/2023). 
SWD(2024) 622 final. 
SWD(2024) 105 final. 

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prices  have  been  growing  strongly  for  several  years.  Non-performing  loans  (NPLs) 
have continued to decline from already moderate levels. Sustained policy progress to 
address the identified vulnerabilities has been made and underpins the visible results. 
The ongoing implementation of the RRP is expected to continue having a favourable 
impact  on  the  growth  potential,  contributing  to  Portugal’s  external  sustainability  and 
helping fiscal sustainability.  

(11)  Based  on  data  validated  by  Eurostat14,  Portugal’s  general  government  balance 
increased from a deficit of 0.3% of GDP in 2022 to a surplus of 1.2% in 2023, while 
the general government debt fell from 112.4% of GDP at the end of 2022 to 99.1% at 
the end of 2023. 

(12)  On 12 July 2022, the Council recommended15 that Portugal ensure in 2023 a prudent 
fiscal  policy,  in  particular  by  limiting  the  growth  of  nationally  financed  primary 
current expenditure below medium-term potential output growth16, taking into account 
continued temporary and targeted support to households and firms most vulnerable to 
energy  price  hikes  and  to  people  fleeing  Ukraine.  At  the  same  time,  Portugal  was 
recommended  to  stand  ready  to  adjust  current  spending  to  the  evolving  situation. 
Portugal was also recommended to expand public investment for the green and digital 
transitions,  and  for  energy  security  taking  into  account  the  REPowerEU  initiative, 
including  by  making  use  of  the  Recovery  and  Resilience  Facility  and  other  Union 
funds.  In  2023,  according  to  the  Commission  estimates,  the  fiscal  stance17  was 
contractionary,  by  1.1%  of  GDP,  in  a  context  of  high  inflation.  The  growth  in 
nationally  financed  primary  current  expenditure  (net  of  discretionary  revenue 
measures) in 2023 provided a contractionary contribution to the fiscal stance of 0.9% 
of  GDP  and  was  in  line  with  the  Council  recommendation.  The  contractionary 
contribution of nationally financed primary current expenditure was mainly due to the 
reduced  costs  of  the  emergency  support  measures  (targeted  and  untargeted)  to 
households  and  firms  in  response  to  energy  price  hikes  (by  1.1  percentage  points  of 
GDP). The main drivers of growth in nationally financed primary current expenditure 
(net  of  discretionary  revenue  measures)  were  public  sector  wages  and  pensions. 
Expenditure financed by Recovery and Resilience Facility grants and other EU funds 
amounted to 1.3% of GDP in 2023. Nationally financed investment amounted to 2.0% 
of  GDP  in  2023,  representing  an  increase  of  0.1  percentage  points  as  compared  to 
2022.  Portugal  financed  additional  investment  through  the  Recovery  and  Resilience 
Facility  and  other  EU  funds.  It  financed  public  investment  for  the  green  and  digital 
transitions, and for energy security, such as the provision of computers to pupils and 
teachers,  new  zero-emissions  buses,  the  installation  of  publicly  available  recharging 

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Eurostat-Euro Indicators, 22.4.2024. 
Council  Recommendation  of  12  July  2022  on  the  National  Reform  Programme  of  Portugal  and 
delivering  a  Council  opinion  on  the  2022  Stability  Programme  of  Portugal,  (OJ  C  334,  1.9.2022,  p. 
181). 
Based on the Commission Spring 2024 Forecast, the medium-term potential output growth of Portugal 
in 2023 is estimated at 9.1% in nominal terms, based on the 10-year average real potential growth rate 
and the 2023 GDP deflator. 
The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of 
the  general  government.  It  aims  to  assess  the  economic  impulse  stemming  from  fiscal  policies,  both 
those  that  are  nationally  financed  and  those  that  are  financed  by  the  EU  budget.  The  fiscal  stance  is 
measured as the difference between (i) the medium-term potential growth and (ii) the change in primary 
expenditure  net  of  discretionary  revenue  measures  (and  excluding  temporary  emergency  measures 
related to the COVID-19 crisis) and including expenditure financed by non-repayable support (grants) 
from the Recovery and Resilience Facility and other Union funds. 

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stations,  the  start  of  the  construction  of  dwellings  with  high  energy  efficiency,  and 
new  programmes  for  green  innovation,  which  are  funded  by  the  Recovery  and 
Resilience Facility and other EU funds. 

(13)  The key projections in the 2024 Stability Programme can be summarised as follows. 
The  macroeconomic  scenario  underpinning  the  budgetary  projections  foresees  real 
GDP  growth  at  1.5%  in  2024  and  1.9%  in  2025,  while  it  projects  HICP  inflation  at 
2.5%  in  2024  and  2.1%  in  2025.  The  general  government  surplus  is  expected  to 
decrease to 0.3% of GDP (in both2024 and 2025), while the general government debt-
to-GDP ratio is set to decrease to 95.7% by the end of 2024 and 91.4% by the end of 
2025. After 2025, the general government surplus is projected to decrease to 0.1% of 
GDP in 2026, and gradually increase to 0.4% of GDP by 2028. Therefore, the general 
government balance is planned to remain below the 3% of GDP deficit reference value 
over the programme horizon. In turn, after 2025, the general government debt-to-GDP 
ratio is projected to decrease to 87.2% in 2026, and further decline by 2028 reaching 
79.8%. 

(14)  The  Commission  Spring  2024  Forecast  projects  real  GDP  to  grow  by  1.7%  in  2024 
and 1.9% in 2025, and HICP inflation to stand at 2.3% in 2024 and 1.9% in 2025. 

(15)  The Commission Spring 2024 Forecast projects a government surplus of 0.4% of GDP 
in 2024, while the general government debt-to-GDP ratio is set to decrease to 95.6% 
by  the  end  of  2024.  The  decrease  of  the  surplus  in  2024  mainly  reflects  the  fiscal 
measures  introduced  with  the  2024  State  Budget  such  as  the  reform  of  the  personal 
income tax, the general increase in pensions and the across-the-board update in public 
wages.  Based  on  the  Commission's  estimates,  the  fiscal  stance  is  projected  to  be 
expansionary, by 1.8% of GDP, in 2024. 

(16)  Expenditure amounting to 1.3% of GDP is expected to be financed by non-repayable 
support  (“grants”)  from  the  Recovery  and  Resilience  Facility  in  2024,  compared  to 
0.6%  of  GDP  in  2023,  according  to  the  Commission  Spring  2024  Forecast. 
Expenditure  financed  by  Recovery  and  Resilience  Facility  grants  will  enable  high-
quality investment and productivity-enhancing reforms without a direct impact on the 
general government balance and debt of Portugal. Expenditure amounting to 0.1% of 
GDP is expected to be backed by loans from the Recovery and Resilience Facility in 
2024,  compared  to  less  than  0.1%  of  GDP  in  2023,  according  to  the  Commission 
Spring 2024 Forecast. 

(17)  On  14  July  2023,  the  Council  recommended18  that  Portugal  ensure  a  prudent  fiscal 
policy,  in  particular  by  limiting  the  nominal  increase  in  net  nationally  financed 
primary expenditure19 in 2024 to not more than 1.8%, unless a higher reference rate in 
net  nationally  financed  primary  expenditure  growth  was  estimated  to  be  compatible 
with Portugal reaching its medium-term budgetary objective (MTO) of -0.5% of GDP, 
inter  alia  if  interest  expenditure  was  lower  than  projected  at  the  time  by  the 
Commission. When executing their 2023 budgets and preparing their Draft Budgetary 
Plans for 2024, Member States were invited to take into account that the Commission 
would propose to the Council the opening of deficit-based excessive deficit procedures 

18 

19 

Council  Recommendation  of  14  July 2023  on  the 2023  National  Reform  Programme  of  Portugal  and 
delivering a Council opinion on the 2023 Stability Programme of Portugal, OJ C 312, 1.9.2023, p. 206. 
Net primary expenditure is defined as nationally financed expenditure net of  (i) discretionary revenue 
measures, (ii) interest expenditure, (iii) cyclical unemployment expenditure, and (iv) and one-offs and 
other temporary measures. 

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based  on  the  outturn  data  for  2023.  According  to  the  Commission  Spring  2024 
Forecast,  Portugal’s  structural  balance  is  projected  at  0.0%  of  GDP  in  2024  (from 
0.9%  in  2023),  thereby  above  the  country’s  MTO.  Portugal  is  therefore  assessed  as 
being in line with what was recommended by the Council. 

(18)  Moreover,  the  Council  recommended  that  Portugal  take  action  to  wind  down  the 
emergency energy support measures in  force, using the related savings to  reduce the 
government  deficit,  as  soon  as  possible  in  2023  and  2024.  The  Council  further 
specified  that,  should  renewed  energy  price  increases  necessitate  new  or  continued 
support  measures,  Portugal  should  ensure  that  these  were  targeted  at  protecting 
vulnerable  households  and  firms,  fiscally  affordable,  and  preserve  incentives  for 
energy savings. According to the Commission Spring 2024 Forecast, the net budgetary 
cost20 of emergency energy support measures is estimated at 0.9% of GDP in 2023 and 
projected at 0.6% in 2024, and 0.5% in 2025. In particular, the general reduction of the 
fuel tax and the freeze of the carbon rate under the fuel tax are assumed to remain in 
force in 2024 and 2025. The emergency energy support measures are not projected to 
be wound down as soon as possible in 2023 and 2024. These risks are not in line with 
what  was  recommended  by  the  Council.  The  budgetary  cost  of  emergency  energy 
support measures targeted at protecting vulnerable households and firms is estimated 
at  less  than  0.1%  of  GDP  in  2024  (0.3%  in  2023)  of  which  less  than  0.1%  of  GDP 
preserve  the  price  signal  to  reduce  energy  demand  and  increase  energy  efficiency 
(0.1% in 2023). 

(19) 

In addition, the Council also recommended that Portugal preserve nationally financed 
public  investment  and  ensure  the  effective  absorption  of  Recovery  and  Resilience 
Facility  grants  and  other  EU  funds,  in  particular  to  foster  the  green  and  digital 
transitions.  According  to  the  Commission  Spring  2024  Forecast,  nationally  financed 
public investment is projected to increase to 2.3% of GDP in 2024 from 2.0% of GDP 
in  2023.  This  is  in  line with  what  was  recommended  by  the  Council.  In  turn,  public 
expenditure  financed  from  revenues  from  EU  funds,  including  Recovery  and 
Resilience Facility grants, is expected to increase to 1.7% of GDP in 2024 from 1.3% 
of GDP in 2023. 

(20)  Based on policy measures known at the cut-off date of the forecast and on a no-policy-
change  assumption,  the  Commission  Spring  2024  Forecast  projects  a  government 
surplus of 0.5% of GDP in 2025. The increase of the surplus in 2025 mainly reflects 
the  projected  economic  pickup  for  the  year,  after  the  slowdown  projected  for  2024. 
The general government debt-to-GDP ratio is set to decrease to  91.5% by the end of 
2025.  

(21)  The  tax  system  in  Portugal  needs  further  simplification.  The  corporate  income  tax 
system, with state and municipal surcharges, creates an additional burden for both the 
tax administration and businesses. This is compounded by the long-standing challenge 
of  burdensome  regulatory  requirements  and  time-consuming  interactions  with  the 
public administration, which heavily impact on the business environment. Outstanding 
tax arrears remain high and well above the EU average (they stood at 45.6% of total 
revenue at the end of 2021). The administrative cost of tax collection is high and has 
further  increased  in  recent  years  (it  increased  by  approximately  4%  from  2018  to 
2021). In addition, the tax administration’s staff is ageing rapidly, as more than half of 

20 

The figure represents the level of the annual budgetary cost of those measures, including revenue and 
expenditure and, where applicable, net of the revenue from taxes on windfall profits of energy suppliers. 

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the  staff  is  expected  to  retire  during  the  next  decade  while  only  few  people  are 
recruited.  Addressing  these  challenges  would  improve  the  business  environment  in 
Portugal and promote competitiveness.  

(22)  Portugal’s  working  age  population  is  expected  to  shrink  by  approximately  1 million 
over  the  medium  term,  mainly  due  to  a  reduction  in  net  migration  and  low  fertility 
rates. With the projected improvement in life expectancy, the ratio of older people to 
those  who  finance  Portugal’s  public  pension  system  is  set  to  significantly  increase. 
While in 2022, there were close to three individuals of working age contributing to the 
system  per  pensioner,  by  2050,  there  will  be  fewer  than  one  and  a  half.  These 
demographic developments exert pressure on the sustainability of the pension system. 
Pension expenditure already represents 28% of total government spending and would 
rise further over the next decades. According to the estimates of the Commission and 
the Portuguese authorities21, pension expenditure is expected to peak at 15.2% of GDP 
in  2046, which is  2.9  percentage points above the 2022 level and  one of  the  highest 
pension  expenditure-to-GDP  ratios  in  the  EU.  In  recent  years,  Portugal  has 
implemented reforms to improve the sustainability of its pension system by indexing 
the statutory retirement age to life expectancy, but measures such as early retirement 
schemes  add  pressure  to  the  sustainability  of  the  pension  system.  On  average,  the 
social  contribution  rate  paid  by  self-employed  is  lower  than  for  employees.  In 
addition, there are special contributory rates for the different types of workers. These 
factors further diminish the potential revenue sources for the pension system. 

(23) 

In accordance with Article 19(3), point (b), and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. These are expected 
to  help  effectively  address  all  or  a  significant  subset  of  challenges  identified  in  the 
relevant  country-specific  recommendations.  Within  this  tight  timeframe,  proceeding 
swiftly  with  the  effective  implementation  of  the  plan,  including  the  REPowerEU 
chapter,  is  essential  to  boost  Portugal’s  long-term  competitiveness  through  the  green 
and digital transition, while ensuring social fairness. To deliver on the commitments of 
the plan by August 2026, it is essential for Portugal to continue the implementation of 
reforms  and to  accelerate investments  by addressing emerging  delays while ensuring 
strong administrative capacity. While Portugal is taking some measures to address the 
lack  of  administrative  capacity,  challenges  remain  in  terms  of  public  procurement 
rules  and  lengthy  permitting  procedures  affecting  in  particular  large  investment 
projects. The systematic involvement of local and regional authorities, social partners, 
civil  society  and  other  relevant  stakeholders  remains  essential  to  ensure  broad 
ownership for the successful implementation of the recovery and resilience plan. 

(24)  As  part  of  the  mid-term  review  of  the  cohesion  policy  funds,  in  accordance  with 
Article  18  of  Regulation  (EU)  2021/1060,  Portugal  is  required  to  review  each 
programme  by  March  2025,  taking  into  account,  among  other  things,  the  challenges 
identified in the 2024 country-specific recommendations, as well as its national energy 
and climate plan. This  review  forms the basis for the definitive allocation of the EU 
funding  included  in  each  programme.  Portugal  has  made  progress  in  implementing 
cohesion  policy  and  the  European  Pillar  of  Social  Rights,  but  challenges  remain. 
Disparities  persist  between  the  mainland’s  coastal  and  inland  areas,  between  the 
mainland and the outermost regions, and between metropolitan areas and small cities 

21 

European Commission, 2024 Ageing Report: Economic and Budgetary Projections for the EU Member 
States (2022-2070), Institutional Paper 279, April 2024. 

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and  towns.  It  is  crucial  to  accelerate  the  implementation  of  cohesion  policy 
programmes and strengthen administrative capacity at national and regional level. The 
priorities  agreed  in  the  programmes  remain  relevant.  Beyond  the  administrative 
capacity measures, it is important to swiftly implement investments in applied research 
in  areas  identified  in  smart  specialisation  strategies,  knowledge  transfer  and 
valorisation  of  R&D  results,  as  a  well  as  investments  in  the  innovation  capacity  of 
small to medium-sized enterprises, the green transition, and competitiveness. It is still 
a priority to improve waste water collection and treatment, water reuse and access to 
water, particularly in  remote areas and the outermost regions,  and to  reduce  leaks in 
the  networks,  as  well  as  to  promote  the  circular  economy,  energy  efficiency  and 
renewable  energy  in  line  with  the  national  energy  and  climate  plan.  Investments  in 
education  and  training,  development  of  qualifications  and  skills  demanded  by  the 
labour market, and targeted active labour market policies, especially for young people, 
remain  key.  Ensuring  equal  access  to  education,  health  and  social  services,  in 
particular  for  disadvantaged  groups,  and  addressing  energy  poverty  continues  to  be 
important. When carrying out the mid-term review of cohesion policy programmes, it 
is  worth  paying  further  attention  to  the  needs  in  the  area  of  prevention  of  and 
preparedness  for  climate  change-related  risks.  Portugal  could  also  make  use  of  the 
Strategic  Technologies  for  Europe  Platform 
industrial 
transformation,  in  particular  with  a  focus  on  advanced  and  resource-efficient 
manufacturing,  sustainable  transport,  biomedicine  and  biotechnology,  and  net-zero 
technologies, while also investing in skills and qualifications to meet labour demand in 
these sectors. 

to  support 

initiative 

(25)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan and other EU funds, Portugal faces several additional challenges related to water 
management, grid infrastructure and storage capacities.  

(26)  Portugal, in particular its southern regions, is heavily affected by natural hazards, such 
as droughts, fires and flooding, with increased frequency and intensity due to climate 
change.  Reduced  annual  rainfall,  water  scarcity  and  increased  temporal  variability 
affect river flows, aquifer recharge, and flood risk, impacting many economic sectors, 
such  as  agriculture,  drinking  water  production,  and  energy,  including  hydropower 
generation,  while  also  affecting  the  sustainability  of  public  finances.  Portugal 
increased its capacity to  adapt  to  climate change  (Climate Law, 2021), including  the 
development  of  sectoral  adaptation  plans.  Portugal  is  also  finalising  a  national 
roadmap  for  adaptation  to  climate  change  until  2100.  Nonetheless,  it  would  be 
important to further incorporate climate adaptation into its water management policies. 
By  improving  its  integrated  and  sustainable  water  management  strategy,  Portugal 
would help ensure that key sectors will still have access to water, while also making 
sure  that  sufficient  and  good  quality  water  is  available  for  ecological  functions,  in 
particular  for  sensitive  and  biodiverse  ecosystems,  such  as  wetlands.  In  addition, 
streamlining the governance structure of the water sector would help achieve effective 
coordination  between  national,  regional  and  local  levels.  To  improve  water 
management,  further  investments  are  needed,  such  as  in  waste  water  collection  and 
treatment,  reduction  of  leaks  in  the  networks,  general  water  supply,  and  improved 
monitoring  (of  water  quantity  and  quality).  Special  attention  should  be  paid  to 
restoring  the  natural  sponge  function  of  the  landscape,  reducing  ground  water 
extraction, restoring wetlands and rivers, including flood plains, and rolling out other 
nature-based  solutions.  Moreover,  Portugal  could  take  advantage  of  the  potential  of 
water reuse.  

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(27) 

In  2023,  Portugal’s  renewable  energy  sources,  driven  by  hydropower  and  strong 
winds, supplied 72% of its electricity, achieving a new record. The significant increase 
in the share of renewable energy played a role in the significant decrease in electricity 
prices,  which  dropped  below  pre-crisis  levels.  To  meet  the  revised  national 
contribution to the EU renewables target for 2030 and to reach the goal of at least 85% 
of gross electricity consumption generated by renewables by 2030, as presented in the 
national  energy  and  climate  plan,  further  progress  is  required  to  improve  Portugal’s 
competitiveness  and  stimulate  the  decarbonisation  of  its  industry,  including  through 
electrification.  While  legislative  measures  have  been  introduced  to  expedite  the 
renewable  permitting  process,  Portugal  faces  potential  short-term  grid  capacity 
challenges in accommodating an increasing portion of renewables in the grid. Revising 
the  transmission  and  distribution  grid  plans  would  help  accelerate  the  integration  of 
renewables in line with the commitments of the national energy and climate plans and 
the  interconnection  commitments  with  Spain  and  France.  Moreover,  logistical 
challenges,  component  shortages,  and  lower  profitability  have  hindered  renewable 
projects, leading to delays in implementation, notably of solar auctions. It is essential 
to  streamline  connection  procedures,  increase  grid  connection  transparency,  and 
provide  a  clear  long-term  auction  planning.  With  the  growing  demand  for  power 
networks,  Portugal  would  benefit  from  further  investments  in  its  electricity  grids, 
including  investments  in  upgrading  existing  power  lines  and  promoting  system 
flexibility  with  solutions  such  as  storage,  smart  meter  deployment,  incentives  to 
consume during off-peak hours, and demand-side response mechanisms. 

(28) 

In view of the close interlinkages between the economies of euro area Member States 
and of their collective contribution to the functioning of the Economic and Monetary 
Union,  in  2024  the  Council  recommended  that  the  euro  area  Member  States  take 
action,  including  through  their  recovery  and  resilience  plans,  to  implement  the 
the  euro  area.  For  Portugal, 
recommendation  on 
recommendations (1), (2), (3) and (4) help implement the first, second and fourth euro 
area recommendations. 

the  economic  policy  of 

HEREBY RECOMMENDS that Portugal take action in 2024 and 2025 to:  

1. 

2. 

22 

Submit  the  medium-term  fiscal-structural  plan  in  a  timely  manner.  In  line  with  the 
requirements  of  the  reformed  Stability  and  Growth  Pact,  limit  the  growth  in  net 
expenditure22 in 2025 to a rate consistent with putting the general government  debt 
on a plausibly downward trajectory over the medium term and respecting the 3% of 
GDP  deficit  Treaty  reference  value.  Wind  down  the  emergency  energy  support 
measures before the 2024/2025 heating season. Improve the effectiveness of the tax 
system,  in  particular  by  strengthening  the  efficiency  of  its  administration  and 
reducing  the  associated  administrative  burden.  Take  action  to  ensure  the  medium-
term fiscal sustainability of the pension system. 

Strengthen administrative capacity to manage EU funds, accelerate investments and 
maintain momentum in the implementation of reforms. Address emerging delays to 
allow  for  continued,  swift  and  effective  implementation  of  the  recovery  and 
resilience  plan,  including  the  REPowerEU  chapter,  ensuring  completion  of  reforms 

According  to  Article  2(2)  of  Regulation  (EU)  2024/1263,  ‘net  expenditure’  means  government 
expenditure net of interest expenditure, discretionary revenue measures, expenditure on programmes of 
the  Union  fully  matched  by  revenue  from  Union  funds,  national  expenditure  on  co-financing  of 
programmes funded by the Union, cyclical elements of unemployment benefit expenditure, and one-offs 
and other temporary measures. 

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and investments by August 2026. Accelerate the implementation of cohesion policy 
programmes.  In  the  context  of  their  mid-term  review,  continue  focusing  on  the 
agreed priorities, taking action to better address the needs in the area of prevention of 
and  preparedness 
the 
opportunities  provided by  the Strategic Technologies for Europe Platform  initiative 
to improve competitiveness.  

for  climate  change-related 

risks,  while  considering 

3. 

4. 

Improve water management to strengthen adaptation to the effects of climate change 
and  ensure  long-term  economic  and  environmental  resilience,  by  putting  in  place  a 
strategy for integrated and sustainable water management, developing its governance 
structure,  promoting  investments  in  wastewater  collection  and  treatment,  leaks 
reduction and water monitoring, while developing nature-based solutions and water 
body rehabilitation, and improving water efficiency and water reuse.  

Strengthen  the  capacity  of  the  electricity  transmission  and  distribution  grid,  in 
particular  by  improving  connection  procedures  and  increasing  their  transparency  to 
incentivise  investments  in  the  national  network  and  increase  energy  storage 
capacities. 

Done at Brussels, 

For the Council 
The President 

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