1. Aim 2. Information to be disclosed by the Ministry of Finance to the Portuguese Public Finance Council

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1 Memorandum of Understanding between the Ministry of Finance and the Portuguese Public Finance Council for issuing an Opinion on the macroeconomic forecasts underlying the Stability Program and the State Budget Proposal Whereas Article 4 (4) and Article 6 (3) (f) of Regulation (EU) No. 473/2013 of the European Parliament and of the Council of 21 May 2013 states that medium-term fiscal plans and draft budgets [ ]shall be based on independent macroeconomic forecasts Whereas Article 2 (1) (b) of said Regulation defines independent macroeconomic forecasts as macroeconomic forecasts produced or endorsed by independent bodies ; Whereas Article 3 (2-A) of Council Regulation (EC) No. 1466/97 of 7 July 1997, as amended by Regulation (EU) No. 1175/2011 of the European Parliament and of the Council of 16 November 2011, and Article 4 (1) of Council Directive 2011/85/EU of 8 November 2011 provide that budgetary planning shall be based on the most likely macro-fiscal scenario or on a more prudent scenario ; Whereas under the combined terms of Article 12-I (1) of the Budgetary Framework Law (Law No. 41/2014 of 10 July) and Article 6 (a) of its Statutes approved by Law No. 54/2011 of 19 October, the Portuguese Public Finance Council meets the conditions laid down by Article 2 (1) (a) of Regulation (EU) No. 473/2013 of 21 May 2013 and is deemed to be a national independent body ; Recognising that analysis of the forecasts requires a wide range of information that involves detailed knowledge of forecasting methods, the variables and the working assumptions used in the operations and in the impact and sensitivity analyses, which may change over time in line with the adoption of new forecasting processes or methods; Taking into account the uncertainty inherent to any forecasting exercise, which is recognised by the Ministry of Finance and the Portuguese Public Finance Council; Recognising that sustained and job creating economic growth is necessarily founded on sustainable public finance which requires paying heed to the importance of the interaction between fiscal policy and economic developments; Recognising that the budgetary programming and the budget process must make a permanent contribution to public finance sustainability; The Ministry of Finance and the Portuguese Public Finance Council (hereinafter the Parties ), enter into this Memorandum of Understanding, which defines how the Portuguese Public Finance Council shall perform its analysis of the macroeconomic forecasts underlying the Stability Program and the State Budget Proposal pursuant to and for the purposes of 1

2 the European legislation that govern the European Semester procedures and the processing of the information the Ministry of Finance supplies the Portuguese Public Finance Council for this purpose. 1. Aim This Memorandum of Understanding defines: 1. The information to be disclosed by the Ministry of Finance (MoF) to the Portuguese Public Finance Council (CFP) for the purposes of analysing the macroeconomic forecasts underlying the Stability Program and the State Budget Proposal; 2. The procedures to be developed by the Portuguese Public Finance Council to analyse the forecasts; 3. The format of the Portuguese Public Finance Council s opinion; 4. The schedule of the forecasts analysis; 5. Its validity, mechanisms for change and the privileged interlocutors. 2. Information to be disclosed by the Ministry of Finance to the Portuguese Public Finance Council 2.1. The Ministry of Finance (MoF) shall provide the Portuguese Public Finance Council (CFP) with the following information pursuant to the schedule laid down in this Memorandum of Understanding: a) As regards the Stability Programme: the variables that make up tables 1a (Macroeconomic prospects), 1b (Price developments), 1c (Labour market developments), 1d (Sectoral balances) and 8 (Basic assumptions) and lines 5 and 6 of table 5 (Output gap, Potential GDP growth and contributions to that growth) of Annex 2 to the Code of Conduct Specifications on the implementation of the Stability and Growth Pact and guidelines on the format and content of stability and convergence programmes of 3 September 2012; b) As regards the State Budget Proposal: the variables that make up tables 0.i (Basic assumptions), 0.ii (Main assumptions), 1a (Macroeconomic prospects), 1b (Price developments), 1c (Labour market developments) e 1d (Sectoral balances) of Annex I to the Two Pack Code of Conduct Specifications on the implementation of the Two Pack and Guidelines on the format and content of draft budgetary plans, economic partnership programmes and debt issuance reports of 7 November The aforesaid information shall be supplied as Excel tables, with no rounding up and in a standard format. 2

3 2.3. The MoF and the CFP agree that the General Government departments involved in the production of the forecasts contained in the Stability Programme and the State Budget Proposal shall reply in an open and cooperative way to enquiries from the CFP that it reasonably believes to be pertinent and they shall supply the information requested of them and at their disposal in a timely manner and at no cost The MoF and the CFP agree that one-off forecasting exercises shall be analysed so as to reconcile them with previous comparable official forecasts and shall be accompanied by sensitivity analysis relating to the more likely or more significant internal and external shocks. To that end the MoF shall provide the CFP with full macroeconomic tables corresponding to the sensitivity analysis scenarios for the shocks deemed relevant The MoF recognises that the CFP may request from MoF departments sensitivity analyses of shocks it deems worthy of consideration and whose suitability shall be endorsed beforehand by both Parties The MoF shall provide the CFP with the Stability Programme and the State Budget Proposal on the same day they are submitted to the Portuguese Parliament and in the respective electronic format. 3. Procedures to be developed by the Portuguese Public Finance Council 3.1. When analysing the macroeconomic forecasts underlying the Stability Program and the State Budget Proposal, the CFP shall use the following analytical tools: a) The technical analysis of the forecasts produced by the MoF and the forecasting methods and tools used to that end; b) Information and clarifications provided by the General Government departments directly responsible for the forecasts submitted; c) Its own forecasts; d) The forecasts made by the European Commission and by the Eurosystem, and by other multilateral international organisations, such as the OECD and the IMF; e) Leading indicators and the latest statistics, in particular those published by the Portuguese Statistical Authority (INE), the Bank of Portugal and the institutions referred to in (d) above; f) Information collected from the various forecasting bodies referred to in the above subparagraphs The CFP may use as information sources other forecasts made by public or private institutions that relate to or include the Portuguese economy and information collected from suitable observers of the Portuguese economy and public finances. 3

4 3.3. When analysing the macroeconomic forecasts underlying the Stability Program and the State Budget Proposal, the CFP shall take into consideration that such analysis is to be performed over a forecasting scenario that should be the most likely or a more prudent one, in line with the applicable legislation The CFP s opinion on the macroeconomic forecasts underlying the Stability Program and the State Budget Proposal shall focus on the information included in the relevant reports by the Portuguese Government to that end. 4. The format of the Portuguese Public Finance Council s opinion 4.1. The CFP s opinion on the macroeconomic scenario underlying the Stability Programme or the State Budget Proposal shall consist of a summary document to be sent to the MoF up to the last working day before the respective documents are submitted to the Portuguese Parliament The aforesaid opinion shall include, in addition to the presentation of the macroeconomic forecasts, their appraisal, a note of their reconciliation with earlier, comparable MoF forecasts and the identification of risk factors and uncertainties whose impact may be relevant to the developments of budget aggregates and to public finances sustainability The CFP s opinion shall combine, from quantitative and qualitative standpoints, the information it has collected and summarised, so as to reflect its opinion as to the likelihood and prudence of the forecasts published by the MoF. 5. The schedule of the forecasts analysis The analysis and the issuing of an opinion by the CFP on the macroeconomic forecasts underlying the Stability Programme or the State Budget Proposal shall be performed in accordance with a schedule whose main stages are summarised in the table below. 4

5 Stage Entity Action 1 MoF Notifies the CFP of the date the SP or SBP will be submitted to the Portuguese Parliament and to the European Commission (D-day) 2 MoF Provides the CFP with the macroeconomic forecast trends (without policy measures), including a description of the underlying judgements made 3 CFP CFP s first reaction to the trend scenario (optional non-published technical document) 4 MoF Delivers first draft of the policy scenario (including a global assessment of the effects of the policy measures on the macroeconomic forecasts) 5 CFP Notifies the MoF of the possibility of nonendorsement accompanied by a brief justification (non-published) 6 MoF Final macroeconomic scenario, (including an assessment of the effects of the policy measures on the macroeconomic forecasts) and the sensitivity analyses taken into consideration Schedule (working days) D-40 D-20 D-15 D-10 D-6 D-4 7 CFP Issuing of final opinion D-1 8 MoF Publication of SP/SBP including the CFP s opinion D 9 CFP Publication of CFP s opinion D Note: SP Stability Programme; SBP State Budget Proposal. 5

6 6. Memorandum of Understanding validity and performance 6.1. This Memorandum of Understanding shall remain in force until it is revised. Either Party may propose its revision which must take place outside of the schedule of events referred to in point 5 above The Memorandum of Understanding, and any subsequent amendments, shall be published by the MoF and the CFP on their respective websites For the purposes of enforcing this Memorandum of Understanding and exchanging correspondence, the MoF and the CFP name the following privileged interlocutors: - on behalf of the MoF, the Director-General of GPEARI - on behalf of the CFP, the head of the macroeconomic forecasts section Lisbon, 6 February 2015 The Minister of State and Finance The President of the Board of the Portuguese Public Finance Council Maria Luís Albuquerque Teodora Cardoso 6