By CHRIS GRAEME [email protected]
For the first time, wealth produced in Portugal last year was insufficient to cover the country’s external debts.
In 2009, Portugal’s debt reached 111 per cent of its GDP and economists have warned that the government’s programme to meet the EU’s Stability & Growth Pact level of three per cent by 2013 won’t be enough.
The country’s debt to outside entities is now so bad that even if the entire nation’s wealth was used to pay debts contracted abroad, it still wouldn’t be enough to bring the balance back down to zero.
The pessimistic conclusion was drawn last week after the Bank of Portugal released the nation’s latest borrowing figures.
The deficit of Portugal’s international investment position, a good indicator of how to measure the country’s external debt, reached 111 per cent of GDP in December 2009.
In 2008, the total amount of debt contracted abroad was already close to 100 per cent of all wealth generated by the country, but it is the first time in living memory that the balance of payments has gone beyond that level.
“This is a reflection of Portugal’s weak external competitiveness: the added value generated internally was not sufficient to completely meet external borrowing obligations and therefore maintain a particular standard of living,” said Paula Carvalho, an economist for the BPI bank.
In other words, Portugal is now clearly living beyond her means at public, private and consumer levels.
“The imbalance is, above all, the result of the Portuguese economy’s lack of competitiveness which is reflected in the country’s current balance of payment accounts,” adds José Reis, an economist and professor at Coimbra University.
According to the latest figures, the Portuguese State is the most responsible for the external imbalance.
Last year, issues of government short and long term bonds to finance the Public Administration (treasury gilts selling government debt in return for interest) mortgaged the country against its total GNP to the tune of 56.1 per cent.
Portugal’s total public liabilities reached a staggering 97.7 billion euros – more than 11 per cent on the debt she had in 2008.
It means that Portugal now has no other alternative to bring the debt down except by selling off part or all of some 17 public owned companies (raising around six billion euros by 2013), increasing indirect or stealth taxation through benefit cuts and further cuts in public administration posts, salaries and spending.
However, on the good side, Portugal has been praised by international agencies such as the International Monetary Fund, OECD (Organisation for Economic Cooperation & Development) and European Commission over its tough plans to slash its budget deficit to three per cent by 2013.
In presenting the Government’s Stability and Growth Programme, Finance Minister Fernando Teixeira dos Santos unveiled a package of cost-cutting measures which included a public sector salary freeze and a temporary increase in income taxes for those earning over 42,000 Euros per year.