Incoming government faces crisis

WHICHEVER party wins this Sunday’s General Election it will have to grapple with a stagnating economy and the widespread perception that Portugal is falling further behind its competitors. All available data makes for grim reading.

Imports easily overtook exports last year, rising to 8.2 per cent. The country continues to consume more than it produces, resulting in serious problems for external competitiveness. Unlike Ireland, which was able to exceed the average wealth of the 15 EU members, Portugal has fallen further behind and even been overtaken by Greece.

Recent projections from the Bank of Portugal say that GDP will grow by 1.6 per cent this year and by two per cent next year.

Economists forecast that unemployment will remain at around six per cent for the foreseeable future.

Personal indebtedness has grown considerably in recent years, from 40 per cent of disposable income in 1995 to 118 per cent in 2004, which is also a reflection of increasing credit opportunities.

Last year saw a 70 per cent year on year increase in bankruptcies.

Fiscal evasion continues to be widespread – it is estimated that 22 per cent of Portugal’s economic activities are conducted furtively and so shielded from taxation.

Direct foreign investment in Portugal has also declined and the country’s economy, judging by all available indices, is now less competitive than that of Poland, Hungary, Estonia, Slovenia, Latvia, Lithuania and Slovakia.

Portugal’s public sector is seen as bloated and excessively bureaucratic. Spending on the state sub-sector accounts for 15 per cent of GDP, against the European norm of 11 per cent. Even Manuel Carvalho da Silva, the Secretary General of the CGTP (the General Confederation of Portuguese Workers) says successive administrations have failed to curb the growth of the public sector. “Governments always say it’s necessary to make cuts but, when they come to power, they are the first to expand the sector,” he says. This is corroborated by the figures – the number of employees in the state sector has steadily increased from 436,000 in 1983 to 778,000 last year.

Although most people, according to a recent poll, describe themselves as “satisfied” with the performance of hospitals, job centres, notaries, finance departments, schools and museums, there remains a widespread feeling that the public sector is inefficient.

Portuguese education also lags behind its competitors, revealing a skills and knowledge shortfall. In 2002, a survey revealed that only 11 per cent of the population, aged between 25 and 64, had been through secondary education as opposed to 49 per cent in America and 35 per cent in Ireland. Only nine per cent of the same group attended higher education in Portugal, compared to 24 per cent in France and 28 per cent in Belgium. Portuguese 15 year olds have been described by some commentators as among the worst prepared in the world.

Portugal would appear to be facing a deep-rooted, systemic crisis. If the polls are right and José Sócrates becomes the new Prime Minister on Sunday, he will face some tough choices to make the country more competitive. G.H.