Portugal is considered an exemplary case of financial adjustment, following the bankruptcy and bailout of 2011, it continues to be a good debt payer, “maintains the capacity to repay”, but there are dangers lurking, says the European Commission (EC) in its assessment of the country within the scope of the new European Semester cycle.
One of the main warnings is aimed at the pension system: medium-term sustainability is in danger and the pension market needs to be opened up more to private individuals, the EC now argues.
In the diagnosis about Portugalpresented this Wednesday by the Economy Commissioner, Valdis Dombrovskis, in the Belgian capital, the Commission’s recommendations clash head on, for example, with some proposals from Chega, which is proposing a reduction in the legal age for access to retirement to the old 65 years or that people can retire as soon as they reach 40 years of discounts (contribution career).
The Commission rejects these types of measures and, on the contrary, insists that the Government must do more to guarantee the sustainability of the current system because there are dangers lurking. “The aging of the population, together with the reduction of the working-age population, puts pressure on the sustainability of the pay-as-you-go pension system in Portugal in the medium term”, says the EC.
According to the country’s assessment, “Public expenditure on pensions is expected to continue to increase over the next two decades, rising from 12.8% in 2025 to 15.1% (of Gross Domestic Product or GDP) in 2045.” making Portugal “present the third highest ratio of pension expenditure as a percentage of GDP among all Member States in 2045, with the projected expenditure of the public pension system reaching its peak in 2046”.
“In Portugal, the legal retirement age is indexed to life expectancy, with a view to improving the sustainability of the pension system”, but this is not enough, argues the Commission.
Waiting for new measures
The European executive notes that the country “created a working group with the aim of defining strategies and evaluating proposals to ensure the sustainability of the system, including the reassessment of the early retirement regime and a study on partial reform mechanisms”.
But he regrets that “this working group has not yet presented its report with concrete policy proposals, and Portugal has not adopted concrete measures that could contribute to relieving pressure on the public pension system”.
“Furthermore, Supplementary pension schemes in Portugal remain poorly developed and cover only a fraction of the active population, which also limits the country’s potential to mobilize long-term savings for productive investment”he adds.
Therefore, the EC recommends that it is necessary to “adopt measures to ensure the budgetary sustainability of the pension system in the medium term and promote supplementary pension schemes”.
Good student and good payer
For the rest, Brussels “assessed the economic, budgetary and financial situation of the Member States that benefited from financial assistance programs, with a special focus on their repayment capacity” and concluded that “the assessments relating to Ireland, Greece, Cyprus and Portugal conclude that the four Member States maintain the capacity to repay their debt”.
According to the most up-to-date figures from the Ministry of Finance, Portugal still owes around 43 billion euros to official European creditors, the ESM (the Eurozone fund) and the EFSM (managed by the Commission). It is the enormous debt that remains unpaid from the time of the bankruptcy and the subsequent bailout and austerity program, which took place between 2011 and 2014.
