UPDATE 2-Portugal 2010 budget deficit overshoots target

* Deficit reached 8.6 percent of GDP vs target 7.3 pct

* Minister says govt can’t ask for bailout until election

* Says has financing conditions to pay creditors

* Bond yields soar after data

(Updates throughout with minister, yields)

By Sergio Goncalves

LISBON, March 31 (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
nationalised 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 honour 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. [ID:nLDE72U0KA]

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 honour
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. [ID:nLDE72U19F]

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
nationalised bank BPN of 1.8 billion euros. The government has
tried to sell the bank, which was nationalised in 2008, without
success.
(Additional reporting by Daniel Alvarenga, Axel Bugge and
Shrikesh Laxmidas; editing by Patrick Graham)

UPDATE 2-Portugal 2010 budget deficit overshoots target