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Is Portugal potentially insolvent

Eric Dor ()

No 2013-ECO-14, Working Papers from IESEG School of Management

Abstract: The primary surplus ratio which is required to stabilize the public debt ratio depends on assumptions about the future rate of growth of nominal GDP and implicit interest rates levels. Under the official scenario of a long term nominal growth rate of 4% and an unchanged implicit interest rate of 3.5%, Portugal may even have a small deficit of the primary balance. However, under realistic forecasts of a 2.5% rate of nominal growth, and an implicit interest rate at 4.5%, debt stabilization requires that Portugal has a huge primary surplus amounting to 3% of nominal GDP . In view of the historical record of an average primary deficit of 1.15% of nominal gdp, it seems to be an extremely difficult objective to reach.

Date: 2013-07
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