Portugal 2010 budget deficit overshoots target

By Sergio Goncalves

LISBON (Reuters) – Portugal’s budget deficit surged past its 7.3 percent target last year, figures on Thursday showed, deepening the scale of its problems as it faces a daunting debt repayment schedule over the next three months.

The revision of the deficit to 8.6 percent of Gross Domestic Product (GDP) piled more pressure on Lisbon to follow Ireland and Greece in seeking an international bailout, sending the country’s bond yields to new euro lifetime highs.

The losses followed a visit by the EU’s Eurostat statistics body and are caused by higher than expected losses for a nationalized bank and public transport companies.

But they add to the problems for the government that emerges from elections which are expected within months after a debt crisis which has forced eye-watering budget cutbacks, crippled growth and forced the current administration to resign.

Finance Minister Fernando Teixeira dos Santos said Lisbon would honor its debt payments even though it has no power to seek a bailout.

“The negative element is that we are appearing more like Greece than we would like, indicating that in the past there must have been some carelessness in the accounts,” said Cristina Casalinho, chief economist at Banco BPI.

“It is a question of methodology. Eurostat has made the rules tougher.”

POLITICAL LIMBO

Portugal’s troubles were already mounting before last week’s resignation by Prime Minister Jose Socrates after parliament rejected his minority Socialist government’s latest austerity measures to help to cut the budget deficit.

That move prompted downgrades by credit rating agencies and warnings by economists that the country could be forced to quickly seek a bailout.

The president is expected to decide on Thursday to call a snap election for late May or early June.

But the political limbo left by the crisis ahead of the expected election made it impossible for the interim government to seek a bailout now, Teixeira dos Santos said.

“We have to face these difficulties and understand that the government doesn’t have the conditions nor the powers to ask for any kind of external help,” the minister told reporters.

Portugal has to redeem 4.2 billion euros of bonds in April and 4.9 billion euros in June.

“The government is not irresponsible and will guarantee that there is the necessary financing for the country to honor commitments to creditors,” he said.

The IGCP debt agency said on Thursday it planned to issue up to 7 billion euros in treasury bills in the second quarter, with an auction planned for April 6 to sell up to 1 billion euros of 12- and 6-month paper.

The agency said any bond issuance would depend on market conditions.

The country’s 10-year bond yields shot around 30 basis points higher on Thursday after news of the budget deficit overshoot. The spread to safer German Bunds rose 529 basis points from 496 basis points late Wednesday.

Teixeira dos Santos said the impact of the changes to national accounts would be limited to 2010 and INE forecast that this year’s budget deficit would still reach the government’s target of 4.6 percent of GDP.

INE said the accounts for 2010 included losses at nationalized bank BPN of 1.8 billion euros. The government has tried to sell the bank, which was nationalized in 2008, without success.

(Additional reporting by Daniel Alvarenga, Axel Bugge and Shrikesh Laxmidas; editing by Patrick Graham)

Portugal 2010 budget deficit overshoots target