Macro View

(reading time: 4 mins)

A strong performance of budget execution, surplus +€597MnYtD (until May) vs. a deficit of €2.5Bn in 2024 (until May), mainly due to lower IRS reimbursements (IRS revenues +17.8%YtD), higher IRC revenues (+38.7%YtD), Indirect taxes (+9.3%YtD) and Expenditures under control, +4.5%YtD. Unfortunately, Debt vs. budget execution keeps underperforming, the Budget surplus €597MnYtD is not aligned with Debt increase, net of deposits, +€2.86Bn YtD. 

The Bank of Portugal has just released, Government debt data in May.     

The main highlights are the following:

1 – Gross Government debt (Maastricht definition): €284,542Mn; +132bpMoM/+316bp YoY and 97.8% of GDP last 12months vs 12MMA (12 Months Moving Average): 96.9% and 3MMA: 97.0% (initial target YE25: 91.8%);

2 – Net Government debt (after the deposits of Public Administration; Maastricht definition): €260,292Mn; -5bpMoM/+2bpYoY and 89.5% of nominal GDP vs. 12MMA: 90.9% and 3MMA: 89.7%.

Separately, the Finance Minister released yesterday evening, May’s budget execution. We would highlight the following:

1 – Surplus: €597MnYtD; +€3,095Mn vs. 2024YtD (January till May);

2 – Surplus in percentage of GDP, on a cash basis, last 12 months: +1.19% vs. 12MMA: +0.6% and 3MMA: +0.9%;

3 – Effective Revenues +12.3%YtD vs. 12MMA: 8.3% and 3MMA: 6.3% (initial budget 2025: +9.8%);

Direct Taxes: +20.6%YtD vs. budget: +1.0% (IRS: +17.8%YtD and IRC: +38.7%YtD);

Indirect Taxes: +9.3%YtD vs. budget: +7.1% (VAT: +9.3% and “Tax on oil…”: +13.8%)  

Contributions (mainly social security contributions, CGA…): +8.2%YtD vs. budget: +5.4%;

Non-Tax and Non-Contributory Revenues (dividends, transfers…):  +16.6%YtD vs. budget +34.8%.

4 - Effective Expenditure:  +4.5%YtD vs. 12MMA: 6.7% and 3MMA: 4.9% (initial budget: +11.5%);

Employees: +8.6%YtD vs. budget, 5.3%;

Purchase of Goods and Services: 3.1%YtD vs. budget: 10.3%;

Interest and Other Charges: -5.9%YtD vs. budget 2.6%;

Current Transfers (mainly pensions and social support): +2.3%YtD vs. budget: 4.0%;

Others (subsidies, Investment…): +14.3% vs. budget: 60%.

Comment: Public debt before deposits, Maastricht definition, in May underperformed, but it was mainly due to higher deposits, roughly €24.2Bn in May vs. €20.4Bn in Abril and Debt €284.5Bn, close to 98% of GDP . In fact, public debt after deposits remained stable on a monthly and yearly basis, around €260Bn; even so +€2.86Bn above the level in December 2024.

Meanwhile, May’s budget execution, released yesterday evening, surplus €597MnYtD, vs a deficit of €2 497Mn in 2024 (January till May), keeps benefitting mainly from a strong performance of IRS, +17.8%YtD (less reimbursements), IRC (+38.7%YtD) and Indirect Taxes +9.3YtD (mainly VAT). Finally, expenditures remain below target, +4.5%YtD vs. target YE25: +11.5%.

Source: Bank of Portugal, INE, AS Independent Research