Portugal Sustainability Issues

The critical environmental and sustainability issues of Portugal:

  1. Ageing Population and Shrinking Labour Force

The ageing of the population, a result of low birth rate and rising life expectancy, represents major challenges for Portugal. In 2018, the population over the age of 65 reached 21.8%. This is due to the post-war baby-boom generation completing its move into retirement. Portugal also has one of the lowest birth rates in the EU standing at 8.5% in 2018. The average age of a resident in Portugal has risen from 33.9 years in 1990 to 44.8 years in 2018, slightly above the EU average (43.1 years).

As such, these dynamics have led to a deterioration in the dependency rate: in 2018, the dependent population (under the age of 15 and older than 65) was equivalent to 55.1% of the working-age population (15 to 64 years of age). This could have a major impact on the labour market, economic growth and pension finances.

 

  1. Government Debt

Portugal had the third highest government debt in the European Union (EU) in 2018, just over €244.9 billion, the equivalent to 121.5% of Gross Domestic Product (GDP), with a budget deficit of 0.5%, owing to government actions during the financial crisis of 2008. The difficulties experienced by the country’s banking sector required state intervention, which in turn, led to a government debt crisis, which was sorted out with the help of the IMF and the European Union.

To make matters worse, between 2009-16 the Portugal economy experienced a severe economic crisis – characterised by falling GDP, high unemployment, rising government debt and high bond yields. This was caused by a combination of the global recession, lack of competitiveness and limitations of being in the Euro.

 

  1. Low Wages and Income Inequality

The high government debt has directly affected the income of the people in Portugal. Portugal proposed to raise the monthly minimum wage by nearly 6% to 635 euros ($700) in 2020, still remaining the lowest in western Europe. One in five workers in Portugal are on the minimum wage and the employment status of 890,000 people was last year officially described as precarious, a term used to refer to non-standard forms of employment, including temporary work and fixed-term contracts. But the salary increases have not yet reached the pace of growth needed to ensure a balanced distribution of income,” the government said, adding Portugal “remains one of the countries with the highest income inequality rates in the European Union. The average equivalised income in the cities is 35-40% higher than in predominantly rural areas, where the levels of poverty and social exclusion are higher. The most recent data from the National Statistics Institute (INE) show that the risk of poverty among children and young people under 18 was at 19% which represents close to 330,000 children. The risk of poverty and exclusion is 30.3% in the population aged 15-19, and 25.8% in the population aged 18-24.

 

  1. Lack of Public Services

A recent report by the International Monetary Fund found Portugal actually had net public investment of about negative 1.2% of GDP in 2016, putting it at the bottom of a list of 26 rich countries. That means it is not spending enough to offset the depreciation of state assets. This means that they are leaving behind a burden for future generations that is extremely high. Portugal’s declining capital stock could have especially serious effects for economic growth. Some economists fear a lack of public investment is starting to undermine the economy, or worse, could be storing up trouble should another recession come. 

With total debt close to 120% of GDP, the government has limited room to finance a big investment drive by putting almost a decade of budget repair at risk. The budget deficit, once 11% of GDP during Portugal’s 2010-14 debt crisis, has been almost eliminated under the Socialists. But that has come largely at the expense of public investment. The government says it has had little choice but to prioritize cutting the deficit, to gain credibility among investors and help the economy recover.

The health care system is another sector that was heavily targeted for budget cuts during the crisis. According to WHO, Portugal is one of only four countries (of 33 analysed) that reduced public health expenditure between 2000 and 2017.

 

  1. Housing Crisis and Homelessness

A report by the Observatory of Crisis and Alternatives in Portugal found that, in the month of June 2018 alone, around 200 real estate funds generated 11 million euros. Between 2014 and 2018, the number of housing-related transactions increased two-and-half times over. The International Monetary Fund, warned of “significant imbalances accumulating in some areas of Portuguese real estate”. The Bank of Portugal, admitted that the rise of Portuguese house prices by 32% nominally and 27% in real terms over a four-year-period was a threat to the country’s financial stability. Portuguese property prices increased 9.2% in the first quarter 2019, the biggest gain in the euro region.

The government scrapped rent controls in 2012 and introduced the golden visa and tax breaks to attract wealthy foreign residents and property investors. Vast amounts of money being poured into property is creating a bubble, whereby the valuation of housing and tourist accommodation far outstrips the market’s means of absorbing it.

As a result, Portugal’s homeless population increased to 4,400 people in November 2018 according to one survey, while a further 11,000 people are deemed at major risk of being made homeless. There is a 25% increase in the number of people officially listed as impoverished over 2010-2017. This number excludes the 67% of Portuguese workers without stable employment.