Portugal’s Budget Deficit Could Take Years to Reduce

Portugal’s finance minister thinks it will take years to produce the country’s budget deficit. The World Bank and IMF are currently evaluating whether further spending cuts are necessary. Next year will see the implementation of additional spending cuts of €4 billion which are on top of next year’s budget. These cuts include the largest tax hikes in Portugal’s recent history.

These spending cuts weren’t part of the country’s original €78 billion bailout from the IMF and the European Union, but have been presented by the government as a way of guaranteeing the long-term sustainability of its austerity plan.

Vitor Gaspar, Portugal’s finance minister thinks it could take several decades to reduce Portugal’s debt to GDP ratio to below 60% and that there are still considerable risks to be overcome. The debt ratio level is expected to peak next year at 124%.

Portugal is currently facing its third year of recession, and although the public initially accepted the need for austerity measures during the first year of its bailout, protests have been increasing against the latest measures.

At the moment the government is anticipating a 3% decline in GDP this year, and a 1% decline next year, but many economists think this prediction is too optimistic. Lisbon has asked the World Bank and the IMF to help identify places where spending cuts can be made as they often give technical assistance to help countries reform their public finances.

It’s expected spending cuts will be identified during the current review of the economy which is due to begin at the end of November. These spending cuts could lead to more opposition as they might include the cuts to benefits including health and welfare.

 

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