By Sergio Goncalves LISBON, April 14 (Reuters) - Portugal may incur a budget deficit due to support measures after devastating winter storms and the energy price shock from the Iran war, its finance
Portugal Sets 0.5% Budget Deficit Cap to Maintain Investor Confidence
Portugal's Fiscal Policy Amid Crises
By Sergio Goncalves
Impact of Winter Storms and Iran War on Budget
LISBON, April 14 (Reuters) - Portugal may incur a budget deficit due to support measures after devastating winter storms and the energy price shock from the Iran war, its finance minister said on Tuesday.
Deficit Cap to Safeguard Investor Confidence
Any gap should be capped at 0.5% of GDP to protect investor confidence, Joaquim Miranda Sarmento told Antena 1 radio, adding that the central scenario was to keep the budget balanced but "there is a risk of a small deficit" due to higher spending.
Forecasts and Fiscal Strategy
The government had forecast that the budget surplus would narrow to 0.1% of GDP this year from about 0.3% of GDP in 2025, marking Portugal's fourth consecutive surplus — a relatively rare feat in the euro zone, where deficits are common.
"To protect the country and preserve the country's good image, which allows us to attract investment and cheap financing, I believe it is important that this 0.5% threshold is never exceeded," he said, adding that Portugal will continue to reduce public debt in any case and "once those one-off effects have passed, it would return to budgetary balance".
Future Challenges and Recovery Measures
EU Loans and Budgetary Pressures
He has previously said 2026 would be a "very difficult year" as 2.5 billion euros in EU recovery loans will hit the budget as expenditure, unlike last year when only grants were used.
Reconstruction Costs and Sector Support
The government has estimated more than 4 billion euros ($4.72 billion) in direct reconstruction costs and rolled out 2.5 billion euros in loans and incentives after Storm Kristin in late January.
Lisbon also proposed a diesel fuel subsidy for key sectors such as agriculture and transport to ease fuel cost rises linked to the war in Iran, a measure expected to cost up to 450 million euros over three months.
($1 = 0.8474 euros)
(Reporting by Sergio Goncalves; editing by Andrei Khalip and Alexander Smith)
