Portugal’s Unreported Madeira Debt to Represent 0.3% of GDP

Debts that weren’t reported earlier by the island region of Madeira will have an impact on Portugal’s public debt of 0.3 percent of gross domestic product, the central bank and the statistics institute said.

The new information will be taken into account in the excessive-deficit procedure notification that will be sent to the European Commission at the end of the month, the Bank of Portugal and the National Statistics Institute said today in a joint statement. Madeira didn’t report debts or expenses since 2003 that would have had a combined impact of 1.1 billion euros ($1.5 billion) in the 2008, 2009 and 2010 deficits.

Portugal’s Finance Ministry said it has no knowledge of other unreported debt or spending and considers Madeira an “isolated case.” Madeira’s regional government will adopt a “structural adjustment program,” the Finance Ministry said in an e-mailed statement.

“This is a less-than-welcome surprise,” European Union Economic and Monetary Commissioner Olli Rehn said today at a press conference after a meeting of EU finance ministers in Wroclaw, Poland. “Eurostat will closely monitor the situation in cooperation with the Portuguese authorities.”

The Portuguese government needs to improve control over expenditure and cut spending to meet its budget-deficit targets as it seeks to regain access to bond markets in 2013, the International Monetary Fund said earlier this week.

Portugal is implementing austerity measures to meet the terms of a 78 billion-euro aid plan from the European Union and the IMF and the government has already announced a one-time income-tax surcharge to help cover a budget shortfall this year.

The government aims to trim the deficit from 9.1 percent of GDP in 2010 to 5.9 percent this year and to the EU ceiling of 3 percent in 2013. The government said on Aug. 31 it predicts public debt of 100.8 percent of GDP this year, rising to a peak of 106.8 percent in 2013, before it starts to decline.

Portugal’s economy will contract 2.2 percent this year and 1.8 percent next year, before expanding 1.2 percent in 2013, according to government forecasts.