Bank of Portugal chief sees balanced budget in reach again soon

ECB governing council member Mario Centeno speaks during an interview with Reuters, in Lisbon
European Central Bank (ECB) governing council member Mario Centeno speaks during an interview with Reuters, in Lisbon, Portugal, March 15, 2021. REUTERS/Pedro Nunes/File Photo

LISBON, Feb 9 (Reuters) - Portugal's government can return to a balanced budget between 2022 and 2023, if it wants, taking advantage of a robust economic recovery from the COVID-19 pandemic, central bank Governor Mario Centeno said on Wednesday.

Centeno said last year's budget gap could be "very close to" and possibly lower than 3% of gross domestic product.

The government, which controls spending and revenue and has the final say on the matter, has a more reserved view, with Finance Minister Joao Leao predicting earlier the 2021 deficit would have settled "slightly below" the targeted 4.3%.

The Finance Ministry declined to comment on Centeno's remarks.

"In 2022, the deficit meets the arithmetic conditions to be below 1% ... and the country is in a position to resume, between 2022 and 2023, the budget balance it had before the pandemic crisis," Centeno said in a speech published on the central bank's website.

Parliament rejected the 2022 budget plan in October, triggering a snap election, which returned Socialist Prime Minister Antonio Costa to power on Jan. 30, this time with a majority needed to pass legislation. He is yet to announce a new government and present its budget bill.

The Bank of Portugal expects economic growth to accelerate to 5.8% this year from 4.9% in 2021, and Centeno said economic activity should return to pre-pandemic levels in the first quarter.

The country achieved its first budget surplus in 45 years of democracy in 2019, equivalent to 0.1% of GDP, but in 2020 the deficit ballooned to 5.8% due to measures to help families and companies through the pandemic, while the economy slumped 8.4% in its worst contraction since 1936.

Centeno said resuming the path of public debt reduction, supported by a credible budget consolidation plan, was "the biggest challenge," but added "we already know the way to go, we have already started it, we cannot hesitate."

Public debt soared to a record 135% of GDP in 2020 and the government expects it to have dropped to 127% in 2021.

Reporting by Sergio Goncalves Editing by Andrei Khalip and Mark Potter

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