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Lisbon given until 2015 to reach deficit target

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(Globalpost/GlobalPost)

Recession-plagued Portugal on Friday won an extra year from its creditors to bring down its public deficit in line with EU regulations, but faces record unemployment and mounting social discontent.

Finance Minister Vitor Gaspar said Portugal, suffering its worst recession in 40 years, will now have until 2015 to bring the deficit below 3.0 percent of gross domestic product (GDP).

"The new deficit limits are 5.5 percent of GDP in 2013, 4.0 percent in 2014, and 2.5 percent in 2015," Gaspar told a press conference as he presented a quarterly review of reforms agreed to in return for aid from the European Union (EU) and the International Monetary Fund (IMF).

The targets had already been eased in September to 4.5 percent for this year, 2.5 percent in 2014 and 2.0 percent in 2015.

Eurozone countries are obliged to run public deficits of no more than 3.0 percent of output, and are supposed to work towards a balanced budget, and even a surplus in times of economic growth.

Last year, Portugal's public deficit came to 4.9 percent of GDP, Gaspar said, taking account of revenues raised through the sale of stakes in Portuguese airports.

But he said some EU authorities would estimate that the deficit stood at 6.6 percent last year, without including the airport sales.

Portugal's troika of public creditors have given a green light to an eighth payment of emergency aid to the country, which negotiated a rescue package worth 78 billion euros ($102 billion) in May 2011.

A joint statement issued by the EU, IMF and European Central Bank said that implementation of a Portuguese reform programme "remains broadly on track, against the background of difficult economic conditions.

"The end-2012 fiscal deficit target was met, financial sector stability has been safeguarded, and a wide range of structural reforms is progressing," it added.

Talks between the troika and Portuguese officials lasted two weeks however, the longest period so far for payment approval, suggesting that the creditors had closely scrutinised Portugal's accounts.

Gaspar said Portugal needed the extra time to cut its deficit because of a weak economic climate that would result in the economy contracting by 2.3 percent this year, much more than a previous forecast decline of 1.0 percent.

"With the worsening recession, unemployment will continue to rise to an average of 18.2 percent this year" and set a record of 18.3 percent by the end of 2013 before rising even higher to 18.5 percent in 2014, Gaspar warned.

In 2012, Portugal's economy declined by 3.2 percent, the worst performance since 1975.

"Weaker growth prospects require an adjustment of the fiscal deficit path" for the country, the troika statement said.

The troika has also granted Lisbon an extra year to reduce public spending by 4.0 billion euros, a goal initially targeted by the end of 2014.

Details of those cuts are expected within the framework of a broader reform programme that the government is to unveil soon.

Early this month, eurozone finance ministers also agreed in principle to give Lisbon more time to repay emergency aid extended by EU partners, which should help the government return this year to private markets for government debt.

Public creditors are mindful of the potential for social unrest in Portugal, where several hundred thousand people demonstrated in around 30 cities on March 2 against austerity measures and to call for the government's resignation.

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http://www.globalpost.com/dispatch/news/afp/130315/lisbon-given-until-2015-reach-deficit-target