Portugal: Portugal seeks IMF/EU bailout
April 23, 2011
On 7 April, Prime Minister Jose Socrates officially asked the European Commission to activate financial support mechanisms. The move had become inevitable after Socrates resignation sent the country into political turmoil and drove up borrowing costs to unsustainable levels. Jose Socrates decided to resign from the office of Prime Minister on 23 March, after failing to obtain parliamentary support for crucial budget cuts, but remains in charge of a caretaker government until general elections are held on 5 June. Socrates did not specify details, such as the size of the rescue package. However, market analysts estimate that the amount could reach EUR 80 billion, as it will also incorporate recapitalization funding for the banking sector. Officials from the International Monetary Fund and the European Union arrived in Lisbon on 12 April to discuss the terms of the aid programme and are expected to reach an agreement before June in time for the new government to roll-over EUR 4.9 billion government debt due on 15 June. On 23 April, Statistics Portugal unveiled new estimates for the country's fiscal accounts. Due to the inclusion of additional spending on highways, last year's fiscal deficit was revised up from 8.6% of GDP to 9.1% of GDP, exceeding the government's target of a 7.3% of GDP deficit and only one percentage point below the 10.1% shortfall recorded in 2009. As a result, the general government's public debt reached 93% of GDP in 2011, up from 83% of GDP in 2009. According to official government targets, the fiscal deficit should narrow from the 9.1% of GDP tallied in 2010 to 4.6% of GDP by the end of 2011. For 2012 and 2013, the government seeks to reduce the shortfall to 3.0% and 2.0% of GDP, respectively. Consensus Forecast panellists are less upbeat than the government and see the fiscal deficit narrowing to 5.4% of GDP this year and to 4.4% of GDP in 2012.