Portugal’s Budget Gap Will Widen to 5% in 2012, INE Says

Portugal’s budget deficit will widen to 5 percent of gross domestic product this year after the government narrowed it to 4.4 percent in 2011, the country’s statistics institute said.

Debt will increase to 119.1 percent of GDP this year from 108.1 percent in 2011, the Lisbon-based National Statistics Institute said today in an e-mailed statement on the excessive- deficit procedure.

Portugal’s debt, which will peak below 124 percent of GDP, “remains sustainable and will be on a firm downward trajectory after 2014,” the IMF, the European Commission and the European Central Bank said in a joint statement on Sept. 11. The IMF in July said it projected Portugal’s debt would peak at about 118.5 percent of GDP in 2013.

Prime Minister Pedro Passos Coelho is battling rising joblessness and a deepening recession as he cuts spending and raises taxes to meet the terms of a 78 billion-euro ($100 billion) aid plan from the European Union and the IMF. Portugal has been given more time to narrow its budget shortfall after tax revenue missed forecasts and the economy heads for a third year of contraction in 2013.

Deficit Target

Portugal aims to reach a deficit of 5 percent in 2012 instead of the previous goal of 4.5 percent, Finance Minister Vitor Gaspar said on Sept. 11 after EU and IMF officials agreed on the new targets. It aims for a gap of 4.5 percent in 2013 rather than 3 percent. It will only cut the deficit below the EU’s 3 percent limit in 2014, when it targets a 2.5 percent gap.

The government had earlier said it narrowed the budget shortfall to 4.2 percent of GDP last year from 9.8 percent in 2010 after the transfer of banks’ pension funds to the state.

The budget deficit narrowed to 3.7 percent of GDP in the 12 months through the second quarter from 4.5 percent in the 12 months through March, the statistics institute said today in a separate statement.

The government projects GDP will shrink 1 percent in 2013 after a contraction of 3 percent this year. It forecasts the unemployment rate will rise to about 16 percent in 2013 from 15.5 percent this year. Economic growth has averaged less than 1 percent a year for the past decade, placing Portugal among Europe’s weakest performers.

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net

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