Public Finance Watchdog Flips Its 2026 Deficit Call to a Slim Surplus — But Warns of €1.2 Billion War and Climate Shock
The Conselho das Finanças Públicas reversed its 2026 forecast from a 0.6% deficit to a 0.1% surplus, but baked in €1.2 billion in war and climate costs and flagged a return to deficits from 2027 — as succession hunt begins for CFP president Nazaré Costa Cabral.
Portugal's independent fiscal watchdog did something unusual on 15 April: it changed its mind. The Conselho das Finanças Públicas (CFP) — the country's equivalent of Britain's OBR or the Congressional Budget Office — flipped its 2026 forecast from a 0.6 per cent deficit to a 0.1 per cent surplus, moving closer to Finance Minister Miranda Sarmento's own numbers after months of public friction.
The reversal matters, and not only because it makes next year's accounts look a shade tidier. The CFP simultaneously trimmed its 2026 growth forecast by 0.2 points to 1.6 per cent, baked in €1.2 billion of combined Middle East war and climate-disaster costs, and warned that deficits are projected to return from 2027 and persist through 2030, with public debt stabilising around 81.5 per cent of GDP rather than continuing its recent downward path.
What's behind the U-turn
Three things. First, 2025 closed stronger than CFP had assumed — tax receipts, and especially VAT and corporate-profit tax, outperformed into year-end, producing a better-than-forecast starting point for 2026. Second, CFP updated its treatment of the government's fuel-tax discount (the desconto no ISP on diesel), now costing the budget roughly €777 million in foregone revenue — a drag that is, counter-intuitively, partly offset by higher economic activity from cheaper fuel. Third, and most importantly, the methodology shifted: CFP is now using the finance ministry's growth assumptions as a sanity check rather than running a fully independent top-down model, a change its president Nazaré Costa Cabral described as a step toward convergence rather than capitulation.
Critics in Parliament disagree. On 8 April, the Socialists and Chega joined forces to reject a CFP motion and block former Finance Minister Mário Centeno from appearing before the Budget Committee — a procedural spat, but one that revealed a deeper unease on both benches about how independent the CFP's calls still are.
Succession fight opens
The political backdrop tightened further last week. Nazaré Costa Cabral's mandate expired on 6 March, and she remains in post on an expiring term. On 19 April, the Tribunal de Contas and the Bank of Portugal — the two institutions that jointly propose the CFP president — formally began the process to identify a successor, a move that usually triggers months of political consultation before Parliament votes.
The timing is awkward. Replacing the watchdog's head during a disputed forecast revision invites accusations that the government is trying to install a more cooperative figure. Opposition benches will watch the shortlist closely; the government has kept deliberately silent about its preferred profile.
The 2027 risk
For all the attention on 2026, the numbers that should worry the Ministry of Finance are further out. CFP projects a 0.4 per cent deficit in 2027 and continues in the red through 2030 on current policy. That matters because Portugal's post-bailout fiscal credibility rests heavily on consecutive surpluses — a narrative now at risk of breaking.
Three pressures converge. Interest costs on legacy debt remain high as old bonds mature and are refinanced at current yields. Pension spending is rising fast as Portugal's demographic bulge retires. And the government's recent labour and defence announcements imply structural new spending that is not yet fully priced into medium-term projections.
What to watch
Three signals in the next six weeks. INE will publish its first estimate of Q1 2026 GDP in late May — a stronger-than-expected print would vindicate CFP's 1.6 per cent annual call, a weaker one would reopen the debate. The Stability Programme (Programa de Estabilidade) submitted to Brussels before 30 April will show the government's own updated fiscal path. And the shortlist for CFP president, expected before summer, will signal whether Portugal's fiscal watchdog is heading toward a quieter relationship with the Finance Ministry or a noisier one.
