A member of parliament for Portugal’s ruling Social Democratic Party said officials from the International Monetary Fund and European Union indicated their “flexibility” on adjustments to the nation’s bailout program.
“The troika demonstrated its flexibility for the program to be adapted to the economic conditions and to the evolution that the economy has had since the memorandum was signed in May 2011,” Miguel Frasquilho, a Social Democrat lawmaker, told reporters today after a meeting with officials from the IMF, EU Commission and European Central Bank. The comments were broadcast by television channel SIC Noticias.
The so-called troika comprising officials from the three institutions on Aug. 28 started the fifth quarterly review of Portugal’s aid program. The review focuses on topics including the 2012 and 2013 budget plans as well as on a planned return to bond markets in 2013.
Portugal is cutting spending and raising taxes to comply with the terms of its 78 billion-euro ($98 billion) rescue. Prime Minister Pedro Passos Coelho said on March 5 that if the country can’t tap 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 predicts the economy will shrink 3 percent this year before expanding 0.2 percent in 2013. Economic growth has averaged less than 1 percent a year for the past decade, placing Portugal among Europe’s weakest performers.
The IMF said in a report released on July 17 that the 2012 budget-deficit goal of 4.5 percent of gross domestic product remains within reach, “although risks to its attainment have clearly increased in recent months.” It said the target could be adjusted.
“Should the target become difficult to reach as a result of weaker revenue performance than currently assumed, there would be a good case to allow automatic stabilizers to operate and adjust the target,” the IMF said in that report.
The adjustment that has to be done to reach this year’s budget deficit target is more difficult as tax revenue has been lower than forecast, an official at the Finance Ministry who asked not to be identified said on Aug. 23. Portugal targets a deficit of 3 percent of GDP for 2013.
The Finance Ministry on July 6 said it will study measures for the 2013 budget that will make up for the impact of a Constitutional Court decision that blocked cuts to the Christmas and summer salary payments of state workers in 2013 and 2014. The court allowed the cuts that will be applied this year, with projected savings of 2 billion euros, more than 1 percent of GDP.