Portugal is adjusting the budget deficit targets in its 78 billion-euro ($102 billion) bailout program as its economy weakens, the International Monetary Fund said.
“Program implementation remains broadly on track, against the background of difficult economic conditions,” the IMF said in a joint statement with the European Commission and European Central Bank after the seventh review of the Portuguese aid plan. “The end-2012 fiscal deficit target was met. The weaker growth prospects require an adjustment of the fiscal deficit path.”
The government is reviewing public spending to identify savings that are needed to meet deficit targets this year and in 2014, the IMF said. Public debt will peak at 124 percent of gross domestic product and remains sustainable, the IMF said.
Portuguese Finance Minister Vitor Gaspar today forecast 2013 GDP will contract more than previously estimated and announced wider deficit targets. GDP will contract 2.3 percent in 2013 before expanding 0.6 percent in 2014. The government aims at a budget deficit of 5.5 percent of GDP in 2013, 4 percent in 2014 and 2.5 percent in 2015.
“Continued strong program implementation and the envisaged adjustment of the maturities of EFSF and EFSM loans to smooth the debt redemption profile will support the government’s return to full market financing during 2013,” the three institutions said in the statement.
The seventh review may conclude in May, allowing for the disbursement of 2 billion euros from Portugal’s bailout package, according to the statement. The mission for the next review is due to take place in May.