EU urges Portugal to do more on budget deficit

08:24, April 15, 2010      

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The European Commission said on Wednesday that Portugal should take additional measures to cut its deficit, which soared from 2.8 percent in 2008 to 9.3 percent last year.

The Commission, the executive arm of the European Union (EU), examined an updated stability program of Portugal on Wednesday, which was designed to reduce the government deficit gradually to 3 percent of gross domestic product (GDP) by 2013.

EU member states are required to keep their budgetary deficit under the 3-percent limit, which only allows temporary breach to a small extent under exceptional circumstances.

"The Portuguese stability program is ambitious and quite concrete for the years 2011-2013 but additional measures of fiscal consolidation might be needed, especially for this year," said EU Economic and Monetary Affairs Commissioner Olli Rehn.

In line with rising deficit, Portuguese public debt, which stood at below 66.3 percent of GDP in 2008, was expected to grow to 77.2 percent of GDP in 2009 and swell further to around 90 percent of GDP by 2013.

Due to Portugal's worsening public finances, Fitch Ratings last month downgraded credit rating of the country from AA to AA-, which means the Portuguese government may have to pay more to continue borrowing from the markets.

The Commission said here are risks associated with the budgetary strategy, as in every back loaded consolidation strategy, linked to the uncertainty stemming from the fact that consolidation measures spelled out in the program still need to be adopted and implemented.

Moreover, the somewhat favorable macroeconomic assumptions after 2010 may imply a lower contribution of economic growth to fiscal consolidation than envisaged, and therefore may require further consolidation measures.



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