Brussels, 12/09/2012 (Agence Europe) - Faced with a worse-than-expected deficit, Portugal was granted extra time by its international lenders on Tuesday 11 September 2012 and has now postponed the target of reducing its deficit to below 3% of GDP until 2014. The new budget correction timeline is 5% in 2012 (rather than 4.5%), 4.5% in 2013 (rather than 3%) and 2.5% in 2014.
This decision is the first of its type for a eurozone country subject to a structural adjustment programme, and has been taken in agreement with the troika of lenders (the European Commission, the European Central Bank and the International Monetary Fund) that have been helping Portugal since May 2011 under the €78 billion bailout plan. During the fifth fact-finding assessment of the reforms introduced by Portugal, the fall in public income in 2012 has been noted, along with a marked recession of -3.3% of GDP and record high unemployment (16% of the working population).
The new public deficit targets will still require extra budget consolidation efforts, explain Portugal's lenders in a press release. The government will have to tighten up management of the public purse, reduce losses made by public companies, reduce the cost of public-private partnerships and slim down the civil service. The troika has fully integrated into its analysis the latest announcements by the Portuguese government of a reduction in employers' social security contributions (see EUROPE 10685), which the troika says will make companies more competitive and sustain employment. Overall, and despite the changes in the deficit target, the troika says in its fifth report that the Portuguese programme is on track and progress has been made. This assessment paves the way for the country to receive a new batch of financial aid, some €4.3 billion.
The troika believes that although public debt will be above 124% of GDP this year, it will fall sharply in 2015 and the risks to financial stability are well under control. Recapitalisation of Portugal's banks, increasing bank supervision and recovery plans have made progress, and reforms to boost competitiveness, jobs and economic growth are proceeding well.
Euro Commissioner Olli Rehn says that the changes to Portugal's deficit reduction target will help cut the short-term economic costs and social impact of implementing the country's aid programme. Portuguese finance minister Vitor Gaspar says that the change in the deficit target would not make any difference to the total amount of aid. (SP/transl.fl).