By CHRIS GRAEME [email protected]
The International Monetary Fund (IMF) has issued a stark warning to the Portuguese government that if urgent public spending cuts are not made now, the country’s accumulated public debt could soar to 100 per cent of GDP by 2014.
The IMF painted a picture of a nation in stagnation, with low productivity and transactional goods and a State Budget ballooning out of control.
In a country report on Portugal this month, it stated that the country would be close to “rupture” within four years if emergency measures were not taken by the government to curb spending now.
The annual report maintained a position of “pessimism” in relation to the development of the Portuguese economy over the next few years.
As the government was struggling to reach agreement with the PSD party over the State Budget 2010 last week, the IMF issued a stern warning that if additional measures were not taken to curb public spending, the deficit would remain well above the three per cent limit set down by the European Union’s Growth & Stability Pact, contributing towards pushing Portugal’s debt to record levels.
According to IMF accounts, the Portuguese annual deficit could go from eight per cent in 2009 to 8.6 per cent this year.
Portugal recently promised European authorities that it would once again bring the annual deficit back down to below three per cent of GDP by 2013.
But some economists have rejected ideas mooted by ratings agencies, research papers and the media that Portugal is heading the same way as Greece, ideas which resulted in specific penalties for Portuguese financial assets.
According to data published by the Espírito Santo Research Unit, Portugal’s fiscal position is better than Greece’s.
In 2009, the Portuguese annual budget deficit, estimated at just over eight per cent of GDP was around 13 per cent in Greece.
Most importantly, the Structural Deficit (i.e. excluding the effects of the recent global downturn) should stand at around 3.7 per cent of GDP in Portugal as against 7.7 per cent in Greece.
By 2010, the EU Commission predicts that Portugal’s total public debt will be close to 85 per cent of GDP while Greece’s will stand at around 125 per cent of GDP.
However, the situation is still far from rosy for Portugal and the IMF, based in Washington, says it wants to see salaries frozen, a reduction in the global salaries being paid by the State for public sector workers, which implies through wage cuts, natural wastage, early retirement or redundancy, cuts in social spending and subsidies and a possible increase in VAT.
“One thing is sure,” states the IMF, “Portugal cannot count on economic growth to solve its budgetary problems over the next few years.”
Last week, market panic over IMF warnings coupled with the Portuguese State’s largest emission of five and 10 year Treasury Bonds since November, to cover sovereign debt, sent investors fleeing from Portuguese stocks and shares with the result that the Lisbon Stock Market saw four per cent wiped off PSI 20 share values.
Do you have a view on this story? Please email Editor Inês Lopes at [email protected]
