Economics in a picture
In the last decade, the structural budgetary position has improved, reaching a close to balance position in 2018
The structural balance has a key role in the analysis of public finances. It is defined as the actual general government balance corrected for the effect of the economic cycle and transitory factors classified as temporary measures. When measured in level, the structural balance provides a useful indicator for the underlying fiscal situation of a country. Excluding interest expenditure, it is obtained the structural primary balance. Its change is a proxy for governments’ discretionary action and, as such, for the fiscal policy stance.
Structural balances are computed by many institutions, most notably the European Commission, the IMF and the OECD, in each case according to specific methodologies and parameters. In 2001, Banco de Portugal adopted the methodology developed by the European System of Central Banks which was recently revised.
According to Banco de Portugal’s most recent estimates, in 2018 the Portuguese structural budgetary position was close to balance. After reaching a minimum of -8,5 per cent of potential GDP in 2009, the structural balance recorded a marked increase during the Economic and Financial Assistance Programme. Since 2015, the improvement has been mild and mostly driven by the decline in debt servicing outlays. Indeed, the change in the structural primary balance points to a broadly neutral fiscal policy in the most recent years.
For further details see “The new ESCB methodology for the calculation of cyclically adjusted budget balances: an application to the Portuguese case”, in Banco de Portugal Economic Studies, Vol. V (2), and chapter 4, “Fiscal policy and situation”, in Banco de Portugal Economic Bulletin, May 2019.
Prepared by Cláudia Braz, Maria Manuel Campos and Sharmin Sazedj. The analyses, opinions and findings expressed above represent the views of the authors and not necessarily those of Banco de Portugal or the Eurosystem.
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