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Bailed-out Portugal to make new cuts in 2014 budget

October 16, 2013 at 1:31 am | News Desk

Bailed-out Portugal to make new cuts in 2014 budget Lisbon: Bailed-out Portugal will put forward new spending cuts demanded by its creditors in a draft budget for 2014 on Tuesday which risks deepening discontent over austerity measures.

“There is no alternative to reducing spending. If we are not able to meet our goals, the price to be paid will be much higher,” Prime Minister Pedro Passos Coelho said on the eve of the presentation of the spending plan.

Portugal, which is trying to regain full access to debt markets with the end of a three-year 78-billion-euro ($106 billion) rescue plan in June 2014, has vowed to bring its deficit down to 4.0 percent of output next year from 5.5 percent in 2013.

The country tried in vain to get its creditors, the European Union and International Monetary Fund, to raise its deficit target to 4.5 percent in 2014. It wanted more leeway to ease austerity measures and thus provide more support to boost economic growth.

To meet the 2014 deficit target the ruling centre-right coalition government, which took a heavy beating in local elections last month, has to trim spending by about 4.0 billion euros next year.

Bailed-out Portugal to make new cuts in 2014 budget

Portuguese Prime Minister Pedro Passos Coelho in Massama, outskirts of Lisbon

Raising the retirement age to 66 from 65 and lengthening the work week for civil servants to 40 hours from 35 hours are among the measures on the table to reduce spending.

“The middle class will continue to be the big victim of this financial crisis…” said Antonio Domingues Azevedo, head of the Association of Chartered Accountants.

Street protests against austerity measures — including tax increases and public worker pay cuts — introduced in exchange for the bailout Portugal received in May 2011 have brought tens of thousands of people into the streets. The demonstrations have so far been non-violent.

‘Last chance’ for Portugal to prove credibility to markets

The 2014 budget — which will be delivered to parliament at around 1730 GMT — has already come under fire from unions and left-wing opposition parties.

“It is an enormous new package of austerity, with huge salary cuts in the civil service,” said Pedro Marques, a lawmaker with the main opposition Socialist party, after meeting with government officials to discuss the budget.

Portugal’s largest union, the CGTP, has called the budget “a stab in the back” while the Communist Party blasted it as “theft.”

The government is walking a tightrope as it seeks to meet the demand of the country’s EU-IMF creditors whole avoiding an eruption of social discontent over the austerity measures.

It also faces divisions within its own coalition. In July it narrowly survived a political crisis when key ministers resigned over widespread public resistance to further austerity policies.

Portugal’s 10-year bond yield has dropped down since the political crisis and is now around 6.4 percent.

But this level is still too high to allow Lisbon to resume regular bond issuance next year after the bailout programme ends.

“The 2014 budget is the last chance for Portugal to prove that it sticks to its goals and can return to the markets without getting a second bailout,” a European source told AFP.

Portugal exited a two-year recession in the second quarter with 1.1 percent growth, but its debt is still ranked below investment grade by Fitch Ratings, Moody’s Investors Service and Standard & Poor’s.

Hurdle of Constitutional Court

The wildcard in the government’s efforts to meet its deficit targets is the Constitutional Court, which has blocked public sector pay and pension cuts and other austerity measures.

In April, the court also ruled against several austerity measures in the government’s 2013 budget worth 1.3 billion euros, including a controversial slashing of bonuses for civil servants and pensioners.

“The big risk for Portugal right now is the Constitutional Court. If it does not play the game, it will be difficult to respect the 4.0 percent (deficit) limit,” said a source close to the Portuguese government’s negotiations with its creditors.

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