Bloomberg News

Portugal Has Less Room to Maneuver With Rising Debt, IMF Says

October 24, 2012

Portugal’s rising debt level is limiting the country’s ability to strike a balance between reducing the budget deficit and supporting growth, the International Monetary Fund said after approving the disbursement of 1.5 billion euros ($1.9 billion) as part of a bailout package with the European Union.

Meeting the targets attached to the loan has become harder because of weaker global demand and rising unemployment, the Washington-based IMF said today. While the extra time given to Portugal to reduce its deficits is welcome, the fund said that “room for maneuver has diminished” because debt is set to peak at about 124 percent of gross domestic product in 2014.

“Additional efforts are necessary, with the support of euro-area partners, to further advance fiscal consolidation and boost long-term growth,” Deputy Managing Director Nemat Shafik, who chaired the meeting, said in a press release.

Prime Minister Pedro Passos Coelho is battling rising joblessness and a deepening recession as he cuts spending and raises taxes to meet the terms of the 78 billion-euro international aid plan. With the weaker economy sapping tax revenue, the IMF has recommended giving countries such as Portugal and Greece more time to meet their budget shortfall goals.

“A prompt completion of the planned expenditure review would help rebalance the adjustment effort, which currently is predominantly based on revenue measures,” Shafik said.

To contact the reporter on this story: Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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