Portugal says EU-IMF creditors relax deficit targets
(LISBON) - The EU and IMF have agreed to relax Portugal's deficit targets for 2012 and 2013, Finance Minister Vitor Gaspar said Tuesday after the latest bailout review.
Gaspar said this year's public deficit target was raised to 5.0 percent of gross domestic product from 4.5 percent, while that for 2013 was increased to 4.5 percent of GDP from three percent.
The changes allowed to Portugal were the first to its 2011 bailout programme and was due to realities that were "different than what was expected", Gaspar said.
The minister said the revision does not mean "a modification of the amount of aid".
Meeting deficit targets is key for Portugal to receive more funds under an EU-IMF rescue package negotiated last year worth 78 billion euros ($100 billion).
"The programme remains broadly on track," the EU, IMF and ECB troika of auditors said in a statement, adding that overall, "the programme is making progress, albeit against strong headwinds".
"This revised path will allow the government to design and implement structurally sound fiscal measures, while easing the short-term economic and social cost of fiscal adjustment," the troika said.
Portugal's implementation of spending cuts and economic reforms required as part of the bailout have caused the economy to contract and had put the 4.5 percent deficit target for 2012 into jeopardy.
Portugal's economy shrank by 1.2 percent in the second quarter, faster than the 0.1 percent rate at the beginning of the year, with the drop for the whole year expected to hit 3.0 percent.
Prime Minister Pedro Passos Coelho announced last week a new package of austerity measures while the auditors of the EU, International Monetary Fund and European Central Bank were conducting their review.
The Portuguese government did not publicly call for a relaxation of its targets, unlike Greece, which is seeking extra time to implement spending cuts but is facing resistance from its European partners tired of seeing reforms postponed.
If the conclusions by the auditors are approved by the IMF executive board as well as EU and eurozone ministers, Portugal will receive a disbursement of 4.3 billion euros as part of its bailout agreement.
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