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Portugal passes bailout test, gets more funding

October 3, 2013

LISBON, Portugal (AP) — Portugal has passed the latest test of its compliance with the terms of its bailout and qualified for around 5.5 billion euros ($7.5 billion) in further funding from creditors, officials said Thursday.

However, the creditors who lent Portugal 78 billion euros in 2011 refused the government’s request to ease next year’s deficit target to 4.5 percent of gross domestic product, Deputy Prime Minister Paulo Portas said. The goal remains 4 percent.

The government wanted softer terms on the deficit to ease austerity measures which are widely blamed for an expected third straight year of recession in 2013. The government predicts that the jobless rate, currently at 16.5 percent, will reach 17.4 percent by the end of this year and hit 17.7 percent in 2014.

The economic downturn has fueled fears that Portugal, like Greece, may need a second bailout and prolong the crisis which the 17 countries sharing the euro currency have battled for three years. Portugal is supposed to start borrowing on financial markets again in the middle of next year, but three major international ratings agencies still classify its credit worthiness at junk status.

Inspectors from the so-called troika of bailout creditors — the country’s fellow euro members, the European Central Bank and the International Monetary Fund — concluded after a two-week assessment visit to Lisbon that the government is complying with the demands of Portugal’s financial rescue agreement, the government and the troika announced.

“The (bailout) program remains broadly on track, with the authorities determined to achieve its objectives,” the troika said in a statement. “Provided the authorities persevere with steadfast program implementation, euro area member states have declared they stand ready to support Portugal until full market access is regained.”

Portugal needed the bailout in 2011 when it was engulfed by the eurozone debt crisis and came close to bankruptcy. In return, Portugal promised spending cuts and economic reforms, and quarterly disbursements are conditional on its compliance.

The troika said the Portuguese economy is “showing early signs of a recovery” and issued revised forecasts for growth. The economy is now expected to contract by 1.8 percent this year, instead of 2.3 percent. The forecast for 2014 is for growth of 0.8 percent, up from an earlier forecast of 0.6 percent.

The troika said they expect Portugal to meet its deficit target of 5.5 percent this year due to “solid revenue performance and improved expenditure control.”

The government needs to find 4.7 billion euros in savings next year. Finance Minister Maria Luis Albuquerque said details of further austerity measures will be published with the 2014 state budget later this month.

The troika said the budget will “aim at rationalizing and modernizing public administration, improving the sustainability of the pension system, and achieving cost savings across ministries.”

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