“Program implementation is on a sound and solid basis” and this is increasingly recognized in Europe, Rehn said after meeting in Lisbon with Portugal’s Prime Minister Pedro Passos Coelho and Finance Minister Vitor Gaspar.
It’s “essential” the country sticks to its target of a budget deficit equal to 4.5 percent of gross domestic product this year in order to achieve the 3 percent target next year, Rehn said. Portugal last year became the third euro-area country to request external aid, following Greece and Ireland. The 2011 deficit narrowed to 4 percent from the prior year’s 9.8 percent, helped by the transfer of banks’ pension funds to the state.
Policies aimed at making Portugal’s economy more competitive are gradually bringing results, the 49-year-old Finn added, praising the country’s recent changes to labor rules.
Portugal’s situation is very different from Greece’s, and its debt burden is not “at all in the same magnitude.” He said he was confident that Portugal’s program will continue to remain on track in the future.
The International Monetary Fund expects Portugal’s ratio of debt to GDP to stabilize at about 115 percent in 2013 and then gradually decline, Abebe Aemro Selassie, the head of the IMF’s aid mission to the country, said in an interview March 5.
Prime Minister Passos Coelho is cutting spending and increasing taxes to meet the terms of a 78 billion-euro ($102 billion) aid plan from the EU and the IMF.
After the completion of the program there may be room for Portugal to make its tax system “more growth- and employment- friendly,” Gaspar said today.
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