The budget deficit and external debt

First of all, I think it is very important to distinguish and have a good idea about the difference between the budget deficit and external debt. Budget Deficit and Public Debt are different concepts but are related, since the higher the Budget Deficit the higher the National Debt will increase.

Budget Deficit:

Shortfall exists when the total value of a Country Public Expenditure (Expense of a State), exceeds the value of the Country Total Revenue ( Revenue of the State), for a certain period of time .

Budget deficit is usually expressed as a percentage of GDP, so that you can compare the value of the Budget Deficit of different countries.

Formula for Calculating the Budget Deficit = Total Public Expenditure (State Expenditure) - Total Public Revenue (Revenue of the State).

Public Debt:

Is the total debt that a state has towards others.

The value of the Public Debt can also be expressed as a percentage of GDP, so that you can compare the Public Debt of Various Countries.

At present, the value of the public debt of the Portuguese State is more than 100 % of the national GDP. The Portuguese government debt reached 124.1 % in 2012, the third highest in the Eurstat revised upwards, while the deficit stood at 6.4% of GDP, the fourth largest in the European Union, along with Cyprus.

According to the second notification, Eurostat deficit and debt of the United States in 2012, the general government deficit fell from 4.2% in 2011 to 3.7 % last year, while the one of the European Union increased from 4.4 % to 3.9 %.

Face to the first notification, published in April, the official statistics office of the European Union has now revised slightly downwards (from 4% to 3.9 %) the value of the deficit of the European Union as a percentage of Gross Domestic Product (GDP), as the value of the public debt in 2012 (85.3% to 85.1 %) . In relation to Portugal, Eurostat has revised upwards the ratio of public debt to GDP (123.6 % to 124.1 %).

In 2012, lower public deficits were observed in Estonia and Sweden (both -0.2 %), Luxembourg (-0.6 % ) and Bulgaria (-0.8 %). Germany registered a surplus of 0.1%.

Portugal, like Cyprus, had the fourth highest deficit (-6.4 %) within the European Union, having been one of the seventeen Member States with a deficit above 3 % of GDP. According to Eurostat, the evolution of the Portuguese budget deficit was 10.2 % of GDP in 2009, 9.8% in 2010 and 4.3 % in 2011.

With regard to debt, the ratio of public debt to GDP in the euro area increased (from 87.3 % at end of 2011 to 90.6 % in 2012). Regarding the European Union, the correspondent amounts were 82.3 % and 85,1 %.

In 2012, the lowest ratios of government debt to GDP belonged to Estonia (9.8%) , Bulgaria (18.5 %), Luxembourg (21.7 %) and Romania (37.9 %), while the highest ones occurred in Greece (156.9 %), Italy (127 %) , Portugal (124.1 %) and Ireland (117.4 %) .

In Portugal, the national debt has been increasing since 2009, when was set at 83.7 %. In 2010 reached 94 % of GDP, in 2011 108.2 % and reached 124.1 % in 2012. All this numbers shows us that Portugal is in a real financial crisis and on trying to give an end to it there was the need to get a loan from external entities.

Portugal made a loan on May 16, 2011. The finance ministers of the Eurozone officially approved a loan of 78 billion euros to Portugal. The loan was divided equally by the European Financial Stabilization Mechanism, the European Financial Stability Facility and the International Monetary Fund.

According to the former Portuguese finance minister, Fernando Teixeira dos Santos, the average interest rate of the loan should be around 5.1%. Portugal thus became the third Eurozone country, after Ireland and Greece, to receive international financial support to overcome financial difficulties.

However the value accepted by the Portuguese government was 26 billion euros, with average interest rate of 3.5% to be paid until June 2021.

Rafael Lameiras da Rocha

[artigo de opinião produzido no âmbito da unidade curricular “Economia Portuguesa e Europeia” do 3º ano do curso de Economia (1º ciclo) da EEG/UMinho]