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Portugal Sees Debt at 120% of GDP This Year, Peaking in 2014

The Portuguese government forecast debt will rise to 120 percent of gross domestic product this year, higher than predicted earlier, before peaking in 2014 at a lower level than it previously estimated.

Debt will peak at 122.3% of GDP in 2014 after reaching 122.2% in 2013, Finance Minister Vitor Gaspar said in Lisbon today as he announced the completion of the sixth quarterly review of the country’s aid program. The government previously forecast debt would reach 119.1 percent of GDP this year, 123.7 percent in 2013 and 123.6 percent in 2014. The budget deficit targets for this year and 2013 were unchanged.

“Executing the budget in 2012 continues to be a difficult exercise,” Gaspar said. This year’s deficit target “will be met and the government is not considering resorting to additional measures.”

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

Deficit Targets

The government aims to reach a deficit of 5 percent of gross domestic product in 2012 instead of the previous goal of 4.5 percent, Gaspar said on Sept. 11 after EU and IMF officials agreed on the new targets. It aims for a deficit of 4.5 percent in 2013 rather than the prior objective of 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 finance minister on Oct. 3 said the government plans to implement an “enormous” increase in taxes on wages and other income to meet budget deficit targets in 2013, when the economy is set to shrink for a third year. Income tax will increase through a 3.5 percent surcharge on 2013 income and a reduction in the number of tax brackets to five from eight.

The government plans to revamp the country’s corporate tax and will try to obtain savings from public-private partnership contracts, Gaspar said today. Next year the government aims to sell postal operator CTT-Correios de Portugal and rail freight company CP Carga, he said. It plans to cut spending by about 4 billion euros in the two years through 2014.

Gaspar also reaffirmed forecasts for GDP to shrink 3 percent this year and 1 percent in 2013. The economy will expand 0.8 percent in 2014, he said. Economic growth has averaged less than 1 percent a year for the past decade, placing Portugal among Europe’s weakest performers. The unemployment rate is forecast to rise to 16.4 percent in 2013 from 15.5 percent this year.

With the conclusion of the sixth review, Portugal will receive 2.5 billion euros from its aid package. After that disbursement it will have received 87 percent of its bailout, not including a 12 billion-euro recapitalization facility for banks that’s part of the aid program, Gaspar said today.

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