Portugual Reduces 2013 Spending Limits in Budget Plan

The Portuguese government reduced spending limits for next year as part of its effort to curb debt and regain access to bond markets.

The government will reduce its primary spending limit by 3.2 percent in 2013 and lower the limit for total spending by 2.1 percent, according to a statement handed out to reporters after a Cabinet meeting in Lisbon today. The plans are included in the government’s budget outline for the 2013-2016 period.

The economy will be in a recession this year and 2013 will be the start “of the economic recovery,” Finance Minister Vitor Gaspar said at a press conference today. Gaspar also said the government is sticking to its target for a budget deficit of 3 percent of gross domestic product in 2013, when the ratio of debt-to-GDP is forecast to peak at 115.7 percent.

Portugal is cutting spending and increasing taxes to comply with the terms of a 78 billion-euro ($103 billion) aid plan from the European Union and the International Monetary Fund. Prime Minister Pedro Passos Coelho said on March 5 that if the country can’t access bond markets by September 2013 due to “external reasons,” it would be able to count on continued support from the IMF and the EU.

The government narrowed its budget deficit to 4.2 percent of GDP in 2011 from 9.8 percent in 2010 after bank pension funds were transferred to the state, and plans a shortfall of 4.5 percent in 2012. Portugal’s debt is forecast to peak at about 115 percent of GDP in 2013, the IMF forecasts.

The government predicts the economy will shrink 3 percent this year and expand 0.6 percent in 2013, according to the budget plan. In March it forecast a 3.3 percent contraction in GDP for 2012.

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