Portugal budget deficit hits record 9.3 per cent

(LISBON) - Portugal's budget deficit hit a record 9.3 percent of GDP in 2009, exceeding European Union and International Monetary Fund estimates of around eight percent, the government said Tuesday.

The government also forecast that the public sector deficit would reduce to 8.3 percent of gross domestic product (GDP) in 2010, according to a draft budget submitted to parliament.

The figures are way above the eurozone limit of three percent of GDP, and Portugal has been under mounting pressure in recent weeks to intensify efforts to bring its fiscal house in order to avoid a possible debt crisis like Greece.

Portugal's public debt is expected to rise to 142.91 billion euros in 2010, or 85.4 percent of GDP, up from 126.22 billion euros or 76.6 percent in 2009, further breaching the eurozone limit of 60 percent.

"It is a reliable, rigorous and demanding budget that responds to the necessity of supporting growth, resuming budget consolidation and helping the Portuguese face the difficulties caused and aggravated by the global crisis," Finance Minister Fernando Teixeira dos Santos told journalists.

"It is also a budget adapted to the moment which should reestablish confidence of economic institutions and investors in our economy," he added, noting that Portugal was at risk of having its debt ratings lowered to the level of its deficits.

Earlier this month, rating agency Moody's warned that Portugal and Greece risked a "slow death" unless they stabilised their finances and then put them on a sounder footing.

"Fiscal consolidation is critical to prevent further deterioration and preserve hard-won credibility," the International Monetary Fund (IMF) warned last week in a report on the Portuguese economy, urging the government to rein in public sector salaries.

European Central Bank officials have also stepped up warnings to eurozone members, who as part of the single European currency no longer have monetary tools at their disposal, that they must work to reduce their deficits.

"We've undertaken a package of measures which send a clear signal of our commitment to budget rigour," added the minister, reiterating the government's pledge to bring the deficit back down to the eurozone limit of under three percent of GDP by 2013.

According to finance ministry figures Portugal should return to modest growth of 0.7 percent after having suffered a contraction of 2.6 percent in 2009.

Unemployment is forecast to rise to 9.8 percent in 2010 against 9.5 percent in 2009.