The deficits of my country

Fernando Teixeira dos Santos

CEO of Euro BIC

In recent years, Portugal has made great progress, reducing its budget deficit to historically low levels. This progress has to be continued in order to ensure the continued reduction in the burden of its public debt, one of the highest in the European and world context.

In addition to the budget deficit, over many decades Portugal has registered chronic external deficit in its balance of goods and services with abroad (balance of exports and imports). Twice, in the past, strong external imbalances have led to difficulties in securing finance, forcing the country to resort to the IMF: the first time between 1977 and 1979 and then between 1983 and 1985.

The correction then made to this imbalance didn’t prove to be lasting. In the 1990s, the average value of the current external deficit was 6% of GDP, rising to around 10% in the following decade. The country’s external debt, which was almost nonexistent in the mid-1990s, had risen to around 80% of GDP by the end of 2008, when the crisis worsened on a world scale. In view of the escalation in the level of this debt, the development of the crisis brought about serious difficulties in accessing external finance. For the third time, the IMF (together with European institutions) was called upon to bail out the country.

The highlight of this intervention has to be the correction registered in our external relations. In my opinion the most important correction and one that shows that the sacrifices made by the country in that period were not made in vain. Since 2013, until the present day, our current account with the outside world has remained balanced, essentially thanks to the balance between its exports and imports. This is a new fact in the Portuguese economic situation that must be kept up because it gives us back a high degree of autonomy in the economic and financial management of the country.

Ensuring we keep up this external balance requires a competitive economy, that is to say, an economy able to produce in more attractive conditions than others. However, Portugal has a low level of productivity, about 60% of the average level of productivity in the Euro Zone. We clearly have a productivity gap. That is why the average standard of living in the country is lower than that of our partners. Increasing productivity is therefore a challenge facing us not only for us to strengthen our external competitiveness but, above all, to bring us closer to the average European standard of living. Improving productivity should be a priority for everyone. A challenge that requires significant improvements in the organisation and management of institutions, and in particular companies, innovation in processes and in products, technological progress and, very importantly, better job qualifications.

Worker skills and qualifications are decisive. An unskilled worker, without qualifications will find it hard to take advantage of the potential provided by the technical and organisational means at his or her disposal. Level of education is a key factor in the development of skills and qualifications in workers. In 2016, only 48% of the Portuguese population between 25 and 64 years of age had 12 or more years of schooling (23% with complete secondary education only and 25% with higher education). This compares to 80% in the European Union (46% with complete secondary education only and 34% with higher education). Comparing Portugal with OECD countries puts us in a very similar relative position.

We can see, therefore, that within European and developed countries Portugal has a significant educational deficit, which goes to explain, to a large extent, its low productivity. Fortunately, in recent decades, the country has been narrowing this gap. The trend has been clearly positive, but there is still a long way to go. Investing in education should remain a priority. That reminds me, quite aptly, of a tweet made by Barak Obama in July 2013: «If you think education is expensive, wait until you see how much ignorance costs in the 21st century».