• Government expects economy to expand 1.8% in 2016 and 2017
  • Portugal needs to cut deficit to comply with EU rules

Portugal’s Socialist government aims to sharply reduce the country’s budget deficit in the coming years in a bid to comply with European Union rules and convince markets it remains committed to fiscal discipline.

The government forecasts the budget deficit will fall from 4.4 percent of gross domestic product last year to 2.2 percent this year and 1.4 percent in 2017, according to the country’s stability program, which was approved at a cabinet meeting on Thursday. In the report, Portugal is targeting economic growth of 1.8 percent this year and the next, and as much as 2.1 percent in 2020.

“The economic growth prospects and the rigorous management of public spending” will help Portugal reduce its budget deficit without the need to increase income taxes or cut public workers’ pay, Prime Minister Antonio Costa said in comments broadcast by SIC Noticias.

Costa was sworn in at the end of November and his minority Socialist government plans to reverse state salary cuts faster than the previous administration proposed, while increasing indirect taxes. Costa says his government will be propped up in parliament by the Left Bloc, Communists and Greens, which haven’t followed the Socialists in backing European budget rules in the past.

The 2017-2020 stability program must be submitted to the European Commission by the end of the month. Euro-area finance ministers on Feb. 11 told Portugal to make plans for additional budget measures in case it runs into trouble meeting its targets.

“Budget execution data demonstrates what we have always said: that no additional measures are necessary,” Costa said. “Therefore, no additional measures will be adopted.”

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