Regional revenues rose 20.8 percent and the deficit fell sharply from €154.2 million a year earlier, but much of the improvement came from a surge in European Union and Central Government capital transfers

Public accounts can improve dramatically without yet becoming strong. That distinction emerges clearly from the Azores’ budget execution through the first seven months of 2026. The Regional Administration ended July with an overall deficit of €35 million, a substantial improvement from the €154.2 million deficit recorded during the same period in 2025. Revenue grew far faster than expenditure, narrowing the fiscal gap by €119.2 million in a single year. Yet behind that encouraging headline lies an important qualification: most of the additional revenue did not come from the ordinary recurring resources of the regional economy, but from a remarkable increase in capital revenues, particularly transfers from the European Union and Portugal’s Central Administration.

According to the July 2026 Budget Execution Summary prepared by the Ministry of Finance’s Budget Entity, effective revenue increased 20.8 percent, from €929.7 million during January–July 2025 to €1.1233 billion during the same period this year. Effective expenditure grew much more slowly—6.9 percent, from €1.0838 billion to €1.1583 billion. The result was a dramatic narrowing of the deficit, although not yet enough to bring the Regional Administration into surplus.

The €193.6 Million Increase—and Where It Came From

The composition of that revenue growth is particularly revealing. The Azores received €193.6 million more in effective revenue than during the first seven months of 2025, but €174.7 million of that increase came from capital revenue. In other words, roughly nine out of every ten additional euros were associated with this component.

Capital revenue more than doubled, rising 142.7 percent, from €122.4 million to €297.1 million. Capital transfers alone increased from €121.8 million to €296.3 million. Particularly striking was the flow of European funding: EU capital transfers increased 255.3 percent, from €36.6 million to €130.2 million. Capital transfers from the Central Administration nearly doubled, rising from €85 million to €165.8 million.

The figures reflect a period of exceptionally intensive public investment and European financing, including the broader implementation environment surrounding the Recovery and Resilience Plan and other investment programs. They also explain why the improvement in the overall budget balance should be interpreted with some care. Capital transfers can transform infrastructure and strengthen the economy, but they are different from recurring revenues upon which ordinary public expenditure can sustainably depend year after year.

Ordinary Revenue Tells a More Modest Story

Current revenue increased only 2.3 percent, from €807.3 million to €826.2 million. Tax revenue performed somewhat better, growing 5.5 percent to €542 million. Personal income tax revenue increased 7 percent to €126.5 million, corporate income tax rose 5.2 percent to €49.5 million, and VAT receipts increased 6.7 percent to €252.2 million.

At the same time, current transfers received by the Region fell 4.6 percent to €246.7 million. Current transfers from the State Budget declined 3.9 percent, while current EU transfers dropped 20.2 percent.

This difference between rapidly expanding capital revenues and much slower current-revenue growth is central to understanding the July accounts. The Azores are considerably closer to fiscal balance than they were one year ago, but the improvement has occurred during an exceptional period of external investment flows.

Investment Rises, Current Spending Falls

The expenditure side presents another interesting contrast. Overall effective expenditure increased 6.9 percent, but current expenditure actually declined 2.1 percent, from €868.3 million to €850.4 million.

Within current spending, however, personnel costs rose 4.4 percent to €471.7 million, while interest and other financial charges increased a more substantial 14.6 percent, from €42.2 million to €48.3 million. Purchases of goods and services moved sharply in the opposite direction, falling 13.6 percent to €223.6 million.

Capital expenditure, meanwhile, expanded 42.9 percent to €307.9 million, consistent with the acceleration of investment activity. Purchases of capital goods rose 47.8 percent to €117.4 million, while capital transfers increased 40 percent to €190.2 million.

The Region nevertheless remained in deficit not only overall but within both major categories. The current balance stood at negative €24.2 million, although substantially better than the negative €61 million recorded one year earlier. The capital balance improved even more dramatically, from a €93.1 million deficit to €10.8 million negative.

Azores and Madeira: Two Different Balances

The figures also produce an unavoidable comparison between Portugal’s autonomous regions. Through July, the Azores recorded a €35 million deficit, while Madeira registered a €41.5 million surplus. Combined, the two regional administrations consequently produced a €6.2 million surplus.

The comparison does not, by itself, explain the different fiscal positions of the two archipelagos. Their revenue structures, investment calendars and expenditure obligations differ. But it does provide useful context: while the Azorean deficit has contracted dramatically, the Region had not yet reached the positive budgetary position recorded by Madeira.

A Better Balance, and a Question for What Comes After

The July accounts are therefore neither a story of fiscal failure nor one of completed consolidation. They show genuine and substantial improvement: the deficit has fallen by more than €119 million, expenditure growth has remained well below revenue growth, current expenditure has declined, and the capital deficit has almost disappeared.

But they also contain a warning against reading the 20.8 percent revenue increase without examining its composition. The extraordinary rise in EU and Central Government capital transfers has played the dominant role in producing that improvement.

And therein lies the larger question for the Azores. European funds can build roads, hospitals, housing, digital systems and other infrastructure. They can accelerate modernization and create opportunities that the ordinary Regional Budget could never finance at the same speed. But exceptional money eventually becomes less exceptional.

The true test of the Azorean public finances will therefore come not only in how successfully the Region spends this extraordinary wave of investment, but in what the accounts look like when that wave begins to recede. A €35 million deficit is unquestionably better than €154 million—but sustainable balance will ultimately depend on what remains when extraordinary transfers return to ordinary levels.

Based on a story in Diário dos Açores- Paulo Vivieiros-director – Photos from Novidades.