LISBON--The Portuguese government said Tuesday it will cut
spending in ministries and continue to lower the number of public
workers to meet budget-deficit targets agreed with international
creditors for next year.
Portugal will exit a three-year, EUR78 billion ($108 billion)
bailout program next month, but lenders--the International Monetary
Fund and the European Union--want to make sure the country won't
slip back into overspending. They have imposed a deficit target of
2.5% gross domestic product for 2015, down from 4% this year.
Deficit was close to 10% of GDP before the bailout program
started.
While the country has struggled to cut the deficit in the first
two years of the program thanks to a worse-than-expected economic
slump, GDP and unemployment figures have improved since the second
quarter of 2013, allowing the government to easily meet last year's
targets.
The better economic performance also means that less austerity
is required. Before Tuesday, the government estimated it needed to
cut spending by more than EUR2 billion next year. Now that figure
has dropped to EUR1.4 billion.
Finance Minister Maria Luís Albuquerque told reporters in a news
conference that cuts in the number of public workers will continue
to be made through retirement and mutual agreements. In addition,
the government could consider imposing taxes on products that are
harmful to health.
The government won't increase income taxes and it won't make
further cuts on salaries and pensions, she added.
Key to Portugal maintaining investor trust after its bailout
ends next month will be a long-term commitment to fiscal
discipline. While the country still has two small bailout tranches
to receive by June, it will have to rely solely on markets for
financing from then on.
That wouldn't appear to be a problem. Demand for Portuguese debt
has been increasing this year, driving bond yields to multiyear
lows. The country's debt agency has been stepping up debt issuance,
creating a EUR16 billion cash buffer sufficient to cover its
financial needs for a year.
Last week, Fitch Ratings raised its outlook for Portugal to
positive from negative, citing a strong economic recovery and
falling budget deficit.
But the ratings agency also warned that any slippage in fiscal
consolidation could make it change its mind. Fitch still considers
the country's debt as junk, although a positive outlook could mean
a rating upgrade at some point this year.
Write to Patricia Kowsmann at patricia.kowsmann@wsj.com
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