Portugal’s central bank warned today that the country’s fiscal consolidation is not complete and that three years of austerity measures so far have raised only half the amount needed for the government to hit its own target.
Approximately €7 billion in additional austerity measures (4% of GDP) will have to be found for the structural deficit to reach 0.5% by 2019, as planned.
The bank’s calculations were done before the latest blow to the government’s plans from the Constitutional Court which rejected some key cost cutting measures, meaning a further €600 million plus can be added to its total reckoning.
"The estimates point to the need for an additional adjustment of about 4% of GDP by 2019, which corresponds to about half of the fiscal consolidation effort between 2011-2013," according to today’s Bank of Portugal dour and depressingly accurate statement.
A significant part of the need to take additional austerity measures are related to the reversal of pay cuts and the end of the extraordinary solidarity contribution. These equate to 1.1% of GDP (€1.9 billion).
The central bank warns also that in the medium and long term "Portugal will face, for demographic reasons, increasing pressures on public expenditure, which require creating additional fiscal space."
The demographic reasons are the low birth rate, emigration running at record rates (120,000 people in the past two years), and the growth of an ageing population qualifying for pensions and using public resources such as the health service.
