Portugal can meet its debt- reduction targets and changes to the 2012 budget that were approved today at a Cabinet meeting include no new austerity measures, Finance Minister Vitor Gaspar said.
Portugal is committed to meeting its budget-deficit target of 4.5 percent of gross domestic product this year, Gaspar said. The government is reducing spending and raising taxes to comply with the terms of a 78 billion-euro ($104 billion) bailout from the European Union and the International Monetary Fund.
“Changes to the budget do not include additional austerity measures,” Gaspar told journalists in Lisbon today after the weekly Cabinet meeting. “The government is convinced it will be able to comply with its commitments.”
The amended budget takes account for a deeper-than-expected recession and the transfer of Portuguese banks’ pension funds to the state, he said. The document predicts the economy will contract 3.3 percent this year, in line with forecasts from the European Commission and the IMF. The original budget had forecast the economy would shrink 2.8 percent in 2012.
Gaspar said the government’s new forecasts are similar to those of the Bank of Portugal, which today said it expects the economy to contract 3.4 percent in 2012 and not expand at all next year as consumer spending drops and export growth eases.
A deeper economic contraction this year will have consequences on Portugal’s revenue and expenditures, Gaspar said. Changes in interest rates charged on short-term debt should compensate for a possible decline in revenue, he said.
Portugal sold 1.61 billion euros of 12-month bills at the lowest rate in more than a year on March 21, marking the second one-year debt auction since the government requested a bailout in April of last year.
The country narrowed its budget deficit to about 4 percent of GDP in 2011 from 9.8 percent in 2010 following the transfer of banks’ pension funds to the state. The government expects the shortfall will reach 4.5 percent of GDP in 2012 and the EU ceiling of 3 percent in 2013.
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