Portugal’s financial plight has deepened after official figures showed the debt-stressed country’s budget deficit last year was 8.6 percent of GDP — way above the government target of 7.3 percent that was intended to allay market fears.
Thursday’s estimate by the National Statistics Institute was another setback for Portugal’s struggle to avoid taking a bailout, like those Greece and Ireland accepted last year, as it faces two months without a government before a June 5 general election and debt repayments it can’t afford.
The deficit figure is far above the eurozone’s limit of 3 percent, though the statistics institute said its measurements were based on new EU accounting rules that -include the cost of helping banks and state companies.
Outgoing Portuguese Finance Minister Fernando Teixeira dos Santos said that without the accounting changes, the deficit last year would have been 6.8 percent, showing that his austerity measures were paying off.
He also complained about the accounting alterations, saying it was “like changing the score after the game has ended.”
Though Portugal’s economy represents less than 2 percent of the eurozone’s GDP, its troubles could wreck European efforts to shake off a debt crisis that has dogged the continent for more than a year. European leaders had hoped that the rescue of Greece and Ireland would ease investor concerns and spare banks across the continent that are exposed to eurozone debt.
However, Portugal’s political uncertainty and crushing debt load have conspired to stoke the crisis.
Its financial difficulties over the past year have pushed the yield on its 10-year bond to a euro-era record of 8.4 percent — an unsustainable level for the ailing country which is expected to enter a double-dip recession this year. It is also roughly the same level that eventually forced reluctant Athens and Dublin to accept help.
Despite that, Portugal continued to defy predictions it would be shut out of financial markets, announcing the sale of up to 1.5 billion euros (US$2.13 billion) in bonds yesterday and up to 1 billion euros in short-term Treasury bills next week.
The government quit last week in a dispute with opposition parties over a new batch of measures to restore the country’s fiscal health.
Portuguese President Anibal Cavaco Silva announced on Thursday in a televised address to the nation that a national ballot for a new administration will be held on the first Sunday in June. He said Portugal faces “a huge challenge” to beat what he said was an “unprecedented” crisis.
Ratings agencies have downgraded the country’s credit worthiness three times in recent days, adding to market pressure on Portugal to accept financial help it has insisted it doesn’t want or need.
On Thursday, the statistics institute also said that the 2009 deficit was 10 percent, higher than its previous calculation of 9.6 percent, and that public debt last year was 92.4 percent of GDP — meaning the amount Portugal owes is close to the amount of wealth it generates in a year.
Santos said the outgoing government doesn’t have the legitimacy to negotiate help, leaving the country in a perilous political limbo that will last more than two months.
In addition, Portugal faces a major test of its finances this month, when it has to rollover 4.5 billion euros. Another crunch comes in June when it has to find 4.96 billion euros for another bond repayment.
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