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Portugal sharply revises up 2014 public deficit

Published on 23/09/2015

Portugal's statistics agency on Wednesday dramatically revised up the eurozone nation's public deficit for 2014, mostly due to a major bank rescue.

The INE agency revised up the deficit from 4.5 percent to 7.2 percent of economic output, way above the EU’s three-percent limit.

The revision mainly reflects the a 4.9-billion-euro ($5.4 billion) cash injection to rescue the Novo Banco bank, the INE said.

Portugal was forced to book the cash injection after it put off earlier this month the sale of Novo Banco, unhappy with the three offers it received.

Finance Minister Maria Luis Albuquerque said the impact “is purely statistical” and won’t “have any consequences for taxpayers” or for Portugal’s “fiscal targets for the coming years”.

Despite completing last year its three-year 78-billion-euro international bailout, with austerity measures finally leading to modest growth, Portugal has had difficulties balancing its public finances.

Nevertheless the INE forecasts that Portugal will be able to meet the EU’s target next year with a deficit of 2.7 percent of economic output.

Novo Banco was created last year from the ashes of BES, once one of Portugal’s largest lenders, but which collapsed after reporting a record loss last year and its three holding companies declared themselves insolvent amid accounting fraud allegations.

BES threatened to drag down Portugal’s economy, which had only gingerly emerged from a three-year bailout, prompting the government and the European Union to swiftly come to the rescue.

The good assets of the ailing bank were transferred into Novo Banco, but plans to quickly sell the bank were undermined by new banks stress tests to be conducted by the European Central Bank, which could require more money be invested to prop up the lender.