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LISBON: Portugal’s budget deficit narrowed to 5.6 percent of GDP in the first nine months of 2012 from 6.7 percent a year earlier, still above the year-end target set for the bailed out nation.
Economists say extraordinary one-off measures are likely to allow Lisbon to meet its five percent target but the underlying budget shortfall is likely to be greater — leaving it with more work to do next year.
In the official data yesterday, the National Statistics Institute said the country’s worst recession since the 1970s drove revenues down 3.4 percent in the January-September period, offset by a 5.6 percent reduction in public spending.
As unemployment soared to record highs of around 16 percent, social security contributions slumped 6.8 percent, while income and property tax revenues fell 5.6 percent.
Portugal’s EU, ECB and IMF lenders agreed in September to give the country more time to meet the deficit targets under their ¤78bn bailout after the austerity affected tax revenues that had been supposed to rise.
Despite the shortfall, they have praised Portugal’s austerity efforts, including huge tax hikes and painful spending cuts, so far. They eased this year’s goal from 4.5 percent. The deficit goal for 2013 was eased to 4.5 percent from 3 percent.