Portugal cuts budget deficit to 8.7% of GDP

Portugal’s first quarter budget deficit fell to 8.7 percent of Gross Domestic Product from 9.2 percent the previous quarter thanks to spending cuts and increased tax receipts, the INE national statistics institute said on Wednesday.

The outcome reflected “reduced public spending, including salary cuts” and higher tax revenue, INE said in a statement.

Faced with a potentially devastating sovereign debt crisis, Portugal agreed to slash its public deficit to 5.9 percent by the end of 2011 in exchange for a 78-billion-euro bailout programme from the European Union and International Monetary Fund.

The deal, agreed earlier this year, aims to bring the deficit down to three percent of GDP, the EU limit, by 2013.

Elected last month, Portugal’s new centre-right government has vowed to “scrupulously apply” the measures negotiated with the EU and IMF and promised even deeper budget cuts.