Pressure to increase civil service wages slows debt – The Economic Journal

Pressure to increase civil service wages slows debt - The Economic Journal

Moody's praised the path of declining Portuguese debt, in the report in which it makes a upgrade of rating of the Republic for investment grade. However, it considers that wage increases in the civil service, together with the recovery of cuts in public services, prevent budgetary surpluses that could lead to further reduction of indebtedness.

Obtaining sufficient primary surpluses to withstand a decline in the debt burden that exceeds forecasts is "unlikely," given "the continuing pressure to raise public sector wages and recover significant cuts in capital expenditures to safeguard the quality of public services, "according to the agency's report.

The agency warned that high corporate indebtedness is mirrored in the public sector and even though public debt will decline gradually over the next few years, as expected, the government will remain heavily indebted to regional and global peers for many years to come.

"These challenges are likely to intensify as the interest rate cycle normalizes and the debt refinancing benefits of the program era," he says. In addition, Moody's expects that, despite improvements in government liquidity, Portuguese Treasury bond yields will remain more sensitive than most regional peers to a confidence shock, given the still high leverage across the economy.

Moody's public service alert comes on the same day that it was learned that the government gave in to the demands of the unions and left-wing parties to change the pay pattern of wage increases for further career advancement in the civil service next year .

The leader of the Federation of Trade Union of Public Administration Workers (FESAP), José Abraão, revealed to the Economic Journal that the formula agreed between the Minister of Finance and the unions for the State Budget for 2019 (OE2019) provides for full payment of the salary increase next year and not until 2020 as proposed by the executive.

The effects of the measure will thus be felt even during this legislature and not beyond 2019. However, the phase-out model is not yet defined, but José Abraham anticipates the possibility that 75% of the remuneration increase will be paid in May and the 100% in December.

This year, civil servants who progressed in the career due to the thawing of the career enrolled in OE2018 received 50% of the salary increase, in a model that included four phases. That is, 25% of the salary increase was paid in January, followed by the second tranche of 25% on September 1, already in 2019, on May 1, employees will receive 75% and on December 1, 100%.

The measure now negotiated applies to all employees who meet the ten points in the performance appraisal – the criterion for progress – on January 1, 2019. José Abraão reveals, however, that with regard to salary increases there are not yet and a new union-government meeting is scheduled for next week.

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