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Portugal says EU-IMF creditors relax deficit targets

Published on 11/09/2012

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 revision does not mean “a modification of the amount of aid,” Gaspar said.

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).

However Portugal’s implementation of spending cuts and economic reforms required as part of the bailout have caused Portugal’s economy to contract and put the 4.5 percent deficit target for 2012 into jeapardy.

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 Portugese 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.