PHOTO CREDIT TK
“As the world moves more and
more toward online distance work-
ing and centrality becomes perhaps
less relevant,” he says, some indus-
tries may decide to move to Portugal,
where rents are cheaper and work-
ers can have a better quality of life.
“Whenever there’s a crisis, there are
lots of opportunities.”
A 2009 law that shielded foreign
pensioners from taxes for 10 years if
they moved their residency to Portugal was reviewed in- After some other EU countries raised concerns,
Portugal’s 2020 budget imposed a 10% flat tax on foreign
pension income. While the tax exemption contributed
to some pensioners’ decision to move to Portugal from
neighboring countries, the impact of the new flat tax
won’t be known until it comes into effect next March.
But the nation has other attractions for older people.
Along with good weather, it offers a “very good private
health sector,” says Reis. “Portugal’s health sector actu-
ally dealt pretty well with the pandemic and showed
it’s a very safe place where you can rely on very good
hospitals and very good treatment.”
STIMULUS AND PRUDENCE
The public policy response to the crisis so far has been
positive, some economists say, and the financial markets
have welcomed the extra spending—
underway or planned—to support the
economy. In July, the government
published a 142-page study detailing
measures aimed at facing “one of the
worst crises” in the country’s history.
The plan includes new infrastructure,
including expansion of metro lines in
Lisbon and Porto plus a new bridge
over the Douro river.
“The decline in GDP should lead
to an increase of the public debt
ratio, which we estimate at 138%,
already including the widening of
the fiscal deficit to 8.5% in 2020,” says
Santander’s Almeida. “Private debt
should also increase, largely reflecting
the decline in nominal GDP. However, we see this as temporary
increase, resuming a downward trend from 2021 onward as we
return to a situation of fiscal primary surplus and GDP growth.”
For the present, the emphasis needs to be on sustaining the
economy “and assuring that viable productive capacity does
not disappear, with long-term losses,” says BPI’s Carvalho.“However, it is also certain that it will be necessary to
frame these actions in a medium-term plan that guaran-
tees the sustainability of public accounts. In this respect,
Portugal has sound credentials in promoting fiscal
consolidation.”
Fitch Ratings affirmed its BBB long-term rating in
April, reducing Portugal’s outlook to stable from positive.
“Despite this shock on the public finances, we still
believe that the Portuguese government is committed
to fiscal sustainability going forward, in terms of putting
out a plan and stabilizing government debt,” says Kit Ling
Yeung, associate director and secondary
rating analyst with Fitch. “Before this
crisis hit, Portugal had made very strong
improvements in its public finances, and
we expect them to return to a relatively
prudent fiscal policy framework once
the shock subsides and the need for
kind of fiscal measures in response to
the shock is lessened.”
In a time of crisis, the government
is reaping the reward of its fiscal pru-
dence, the agency argues. “Portugal
was successful in controlling its deficit
and debt,” says Napolitano. “The level
of public debt is high, for sure, but it
is one of the countries that used the
good times between 2015 and 2019 to
reduce its stock of public debt. Portugal
and Italy, to give you an example, had the same level of
public debt in 2015, more than 130% of GDP; in 2019,
Portugal’s debt-to-GDP was 114%, whereas Italy had the
same level as 2015. We look at the track record, and the
track record in that respect is quite positive in terms of
public finance management.”
The EU’s Covid response may hasten Portugal’s recov-
ery, as well. Helped by an expansive monetary policy,
the central bank’s bond yields have hit record lows.
Immediate savings will be limited, but the low cost of
money will have a positive impact in the years to come,
says Andrew Kenningham, chief Europe economist at
Capital Economics.
“The policy response in Europe has been much better
than during the global financial crisis,” he says, adding
that the new €750 billion ($882 billion) package aimed at
funding post-pandemic relief efforts across the EU has sparked
greater optimism. The aid must still be approved and will be
likely not be available until 2021.
“For Portugal, the immediate savings this year will be very
low,” says Kenningham. “But what matters really is that the debt
becomes far more sustainable in the long term.” ■Yeung, Fitch: We expect
Portugal to return to a
relatively prudent fiscal policy
framework once the Covid
shock subsides.September 2020 | Global Finance | 55SECTION NAME
STORY NAME TK | By Name TktktktkCastro e Almeida, Santander:
It’s important that we, as
country, seize this opportunity
to further diversify our economy
and find new avenues for the
country to grow.Paula Carvalho, Banco
BPI: Portugal has sound
credentials in promoting fiscal
consolidation.