Portugal Narrowed Budget Deficit to 4.2% Last Year, INE Says

March 30 (Bloomberg) -- Portugal’s budget deficit last year was 4.2 percent of gross domestic product, less than half of the 9.8 percent shortfall reported for 2010, the country’s statistics institute said.

Portugal’s debt was 107.8 percent of GDP in 2011 and is forecast to reach 112.5 percent of GDP in 2012, the Lisbon-based National Statistics Institute said in a statement today. Debt was 93.3 percent of GDP in 2010.

The government previously said the budget gap narrowed to about 4 percent of GDP in 2011 following the transfer of banks’ pension funds to the state. It expects the shortfall to reach 4.5 percent of GDP in 2012 and the European Union ceiling of 3 percent in 2013.

Prime Minister Pedro Passos Coelho is cutting spending and raising taxes to meet the terms of a 78 billion-euro ($104 billion) aid plan from the EU and the International Monetary Fund. As the country’s borrowing costs surged, Portugal followed Greece and Ireland in April in seeking a bailout and now plans to return to bond markets in 2013.

The IMF expects Portugal’s ratio of debt to GDP will “stabilize” at about 115 percent in 2013 and then gradually decline, Abebe Aemro Selassie, the head of the fund’s aid mission to the country, said on March 5.

The government must implement the spending cuts and tax increases in a shrinking economy that has grown less than 1 percent a year on average in the past decade. The Portuguese economy will contract 3.3 percent this year, the European Commission forecast on Feb. 23. By comparison, the 17-nation euro economy is seen shrinking 0.3 percent.

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

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net