Economic recovery in Portugal

Economic recovery in Portugal

The recovery of the economy and companies at best will start at the beginning of the second half of this year. At worst, only at the end of the year or beginning of 2021. Everything will depend on the duration, intensity of the epidemic and the flatness of the curve to contain the number of cases. The crisis, being external and reaching the whole world, affects mainly the activities that are most exposed to the evolution of the world economy and the pace of recovery of the main destinations of national exports and, of course, of the countries that feed tourism with increasing weight in the last years. This is the sector with the most violent immediate impact and it will be the one that should slow down the recovery. The mistrust and fear of tourists will be the main driver (or brake) of international travel, even if governments ease measures of confinement.

In recent times, several measures have been announced by the Portuguese government, both exceptional and temporary, relating to the impact on the economy of the Coronavirus epidemic - COVID 19. Such measures are essentially aimed at the attribution of extraordinary support, aimed at workers and employers affected by the outbreak of the COVID-19 virus, with a view to maintaining jobs and mitigating business crisis situations.

Business support measures

The Council of Ministers approved a set of measures aimed at ensuring the mitigation of economic impacts, both in terms of supporting companies' treasury and protecting jobs, namely through the creation of:

·         Credit line to support companies' treasury of € 200 million;

·         € 60 million credit line for micro-enterprises in the tourism sector;

·         Simplified lay off: Extraordinary support for the maintenance of employment contracts in a company in a business crisis situation, in the amount of 2/3 of the remuneration, ensuring Social Security the payment of 70% of this amount, the remainder being borne by the employer;

·         IEFP training scholarship;

·         Promotion, in the contributory scope, of an exceptional and temporary regime of exemption from the payment of Social Security contributions during the lay off period by employers;

·         Measures to accelerate payments to companies by the Public Administration;

·         PT 2020.

Looking at the Insolvency and Business Recovery Code (CIRE) and separate legislation on these issues, some ideas may help companies that, due to the exceptional situation we are experiencing, are in a situation of imminent insolvency, or even current insolvency. .

Thus, from the outset, in matters of insolvency, there is an exceptional and transitory measure which, in the image of what has already been announced by the German government, seems to make perfect sense to transpose to Portugal:

·         Suspend the obligation to file for insolvency, whenever, cumulatively, the economic and financial situation of the company results from the effects of COVID-19 on the economy and this company is still able to recover, namely through the negotiation of an agreement with the your creditors. This measure, which, at first sight, could be assumed to be of little relevance, is not, as, according to CIRE, when a company is in a situation of insolvency, it must request the declaration of its insolvency by the court, under penalty of qualifying insolvency as culpable, with all that it entails, in terms of liability for the administrators, including criminal nature.

·         Probably, even more important than the measure referred to in the previous paragraph, are the transitional and exceptional changes, which may be introduced in the Special Revitalization Process (PER) regime and the Extrajudicial Business Recovery Regime (RERE). Within the scope of these two instruments for the recovery of companies, existing in Portugal, it is important to clear, with respect for the rights and interests of creditors, the recourse by companies to PER and RERE, as well as the approval of recovery plans. .

In this crisis situation caused by the COVID-19 epidemic, other and, possibly more pertinent, transitional measures may be created in terms of corporate restructuring and insolvency. The important thing, in any case, is to act quickly, giving entrepreneurs all the tools that will allow them to continue to generate wealth, thus avoiding the destruction of jobs.

What to do to improve the progress of recovery from the crisis?

In the short term, it is necessary to think about the relaunch of the economy immediately after the easing of restrictions on the functioning of markets. The Portuguese government has chosen the tourism, catering and travel sector as the priority to support (now the support is already extended to all sectors of activity).

·         The tourism sector is not only a priority for maintaining installed capacity and jobs during the crisis, but it is also due to the fact that the end of the pandemic is likely to coincide with the beginning of the high season for tourism in Portugal. With this sector having a significant weight in the national GDP, it seems warned that the essential conditions for its full functioning in June, July, August and September are guaranteed, thus minimizing the expected negative value for the Portuguese GDP growth in 2020.

·         In the long run, the essential measures are different and it is not possible to escape the issue of structural reforms that may be within the sphere of the Portuguese State and be promoted independently of European measures. The virus COVID-19 brought with it one of the greatest enemies of economic activity, uncertainty. Uncertainty is present in relation to the effect and duration of the restrictive measures, and also in relation to an eventual second pandemic wave. It is necessary to create greater certainty in economic agents, acting in several areas.

·         It is necessary to make justice more efficient, despite the improvement in indicators in recent years. Approximately 250 days to resolve a civil or commercial case at first instance (according to the The 2019 EU Justice Scoreboard) still leaves much room for improvement. In addition, even with this improvement, Portugal remains at the middle of the table of European countries. If we want to recover from the crisis and also leave in a sustained way the stagnation trajectory that Portugal has been on since 2000 (on average), then we have to do much better than the others, it is not enough to be average.

·         The country needs to have a stable fiscal framework, much longer than the 4-year legislatures. Reducing uncertainty to increase investment (domestic and foreign) is keeping the fiscal framework stable - more than cutting taxes, tax certainty is needed. It is not beneficial to support a long-term growth strategy for each government to change the IRC, more so than even for each State Budget.

·         An essential aspect for greater certainty for investors (and for economic agents in general) is that the State Budget is reduced to the essential of what is the allocation of income (current) to expenditure (current) and is itself subject to more general laws (public investment laws, public procurement laws, etc.). Only then will it no longer be an element of uncertainty, the result of separate negotiations in parliament and which change from moment to moment. It has been common in Portugal that OE is an element of uncertainty for economic activity, every year. This is clearly harmful to investment (both domestic and even more foreign).

·         Since human capital, like investment in physical capital, is an engine of economic growth, it is also necessary for Portuguese society to support one (or several) school model (s) and to keep it stable over time. While there has also been progress here in international results (i.e. PISA tests) since 2000, there has been a slowdown in that progress in the past results that needs to be understood and reversed.

·         Finally, public funding for research, be it for companies or for researchers (in universities, for example) or for partnerships between them, cannot be subject to the uncertainty that has characterized it. Researchers cannot reasonably anticipate when the next FCT tender will be launched in a given area (neither the one that is for all scientific domains, nor the one that is intended to finance research units and that should have a specific deadline, known, stable).

In recent years, society in general, and some organizations in particular, have deeply despised knowledge and cooperation. However, this huge public health crisis, with unimaginable economic consequences, cannot be resolved without breaking this paradigm. We hope that this critical moment that we are experiencing, due to its uniqueness, will serve as a starting point so that organizations / countries can be managed based on these principles and does not serve, as happened in previous crises, to “bleach” the incompetence of those who, inefficiently / negligently managing organizations / countries, they weakened the “immune system” of the economic and financial structure.

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