Bank of Portugal chief says country must use EU grants, reduce debt

FILE PHOTO: ECB governing council member Mario Centeno speaks during an interview with Reuters, in Lisbon

By Sergio Goncalves

LISBON (Reuters) – Portugal, which is gearing up for a snap election on Jan. 30, must take advantage of European Union recovery grants to support growth and resume pre-pandemic reductions of its high debt, Bank of Portugal Governor Mario Centeno warned on Monday.

He said the EU's pandemic recovery plan “makes public and private investments viable without burdening public accounts in the short term”, but the period for the implementation of such projects is relatively short, until 2026.

“To lose this opportunity is to waste the most relevant moment of the European integration since the creation of the euro,” he told an economic conference.

The former finance minister also warned that failure to resume the course of public debt cuts, supported by a credible fiscal consolidation plan, “would be unforgivable”.

Due to the pandemic, public debt soared 19 percentage points to a record high of 135% of GDP in 2020, after having been reduced by 15 percentage points between 2017 and 2019.

Finance Minister Joao Leao said two weeks ago that the government had mechanisms to rapidly implement the EU recovery plan in the absence of a new budget and kept the 5.5% growth target for 2022.

Portugal plans to use 3 billion euros ($3.38 billion) in grants to finance investments in digital and environmental projects in 2022, out of 13.9 billion euros it should get though 2026.

Planning Minister Nelson de Souza, who oversees the implementation of the programme, said on Monday that “the plan is following its normal course, the investments are contracted with the EU and the financial means and legal conditions are available.

“Until next government takes office, I don't foresee any big difficulties … beyond that it will be up to the next government,” he told the same conference.

Portugal is holding a national election on Jan. 30, after parliament threw out the minority Socialist government's 2022 budget bill, ending six years of relative political stability.

($1 = 0.8879 euros

(Reporting by Sergio Goncalves)

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