Portugal beats budget targets on path to exiting bailout

Portugal took a big step towards emerging from its debt bailout and regaining investor confidence on Monday by beating its budget target by a wide margin.

Portugal, still struggling to overcome its debt crisis, to pull away from recession and overcome public anger at tough austerity measures, turned in a budget overshoot equivalent to 4.9 percent of output last year.

That marked a huge reduction from a public deficit of 6.4 percent in 2012, official data showed on Monday.

The outcome was far better than the target of 5.5 percent set by the government and creditors financing a bailout which is due to end on May 17.

The figures was published by the national statistics office in line with European Union Eurostat calculations and included the injection of 700 million euros to recapitalise the Banif bank.

Excluding this capital injection, the public deficit amounted to 4.5 percent of gross domestic product, analysts calculated.

The latest figure will be seen as a big encouragement to the Portuguese government, and reassurance for investors, as the country prepares to return fully to financing itself normally on the sovereign debt market.

But despite this marked progress in reducing the annual deficit, the gap between spending and revenues, the public debt of accumulated past deficits rose to 129.0 percent of output last year from 124.1 percent in 2012.

The debt now amounts to 213.63 billion euros, the statistics office Ine said.

The national accounts benefited from a partial tax amnesty which enabled taxpayers with outstanding taxes to pay to do so before the end of the year, a measure which raised 1.25 billion euros ($1.73 billion), far more than the expected figure of 700 million euros.

In the second half of last year, the economy pulled out of recession to show growth of 1.1 percent and this also helped public finances, since growth raises tax income and reduces some costs.

The recovery, ending two and a half years of recession, held in the fourth quarter when the economy grew by 0.6 percent on a quarterly basis.

In May 2011, Portugal was rescued by the International Monetary Fund and by the European Union with loans totalling 78 billion euros on condition that the country enact deep structural reforms to correct public finances and raise efficiency in the economy.

However, this slowed down the economy, and also household spending which began to recover in the last quarter of last year.

At the end of February, auditors from the IMF, EU and European Central Bank approved progress by Portugal in meeting the loan conditions.

But before the creditors release a slice of funding worth 2.5 billion euros, the government must come up with measures worth a further 1.7 billion euros to reduce the public deficit to 4.0 percent of output this year and 2.5 percent in 2015.