By Sergio Goncalves and Daniel Alvarenga
LISBON Oct 3 Portugal's international lenders
approved the country's performance under a bailout in their
latest review on Thursday, but rejected government requests to
ease fiscal goals.
The European Union and International Monetary Fund said
Lisbon was moving to meet the lending programme's goals and that
there were early signs of recovery after the worst economic
downturn since the 1970s.
"The programme remains broadly on track, with the
authorities determined to achieve its objectives," the lenders
said in a statement.
"Provided the authorities persevere with steadfast programme
implementation, euro area member states have declared they stand
ready to support Portugal until full market access is regained."
With no change in next year's budget deficit goal, the
government is set to push ahead with spending cuts of 4 billion
euros ($5.5 billion) next year, which are likely to be detailed
in the draft budget to be presented later this month. Business
groups have argued these cuts could compromise a fledgling
The first signs of economic growth prompted the government
and creditors to raise next year's growth forecast to 0.8
percent from 0.6 percent. This year's gross domestic product
(GDP) contraction is now seen at 1.8 percent compared with the
previous estimate of a 2.3 percent decline.
Portugal's 78-billion-euro bailout is due to expire in
mid-2014 but many economists expect that the country will
continue to need some form of aid after that, possibly through a
precautionary loan programme from the European Union.
Finance Minister Maria Luis Albuquerque said Portugal would
not rule out bond issues this year and the goal was to resume
regular issuance in 2014.
"It is our objective (bond issuance in 2014), it is a
condition of the conclusion of the bailout, and it is also our
intention to carry out some bond swaps," next year, she said.
But the lenders said the government could find it hard to
attract investors if the government can't ensure austerity
measures are enacted next year.
Portugal's Constitutional Court has shot down several
government austerity measures over the past 14 months.
The prospect of further measures being declared
unconstitutional, forcing a change to the 2014 draft budget
"would reduce the prospects for a sustained return to financial
markets," the lenders warned.
Albuquerque said the approval of the latest review by the
creditors was positive.
"We are still in a period of uncertainty which with this
announcement today will be reduced substantially," she said.
"What the markets like the least is uncertainty."
Portuguese bonds rose strongly on Thursday, with 10-year
yields falling to 6.64 percent from 6.80 percent.
The bailout terms have deepened two and half years of
recession and sent unemployment to record levels. However,
Portugal's economy grew in the second quarter of this year.
The government said unemployment would keep rising this year
and next from last year's 15.7 percent, but revised the
joblessness forecast lower to 17.4 percent for this year from
18.2 percent previously. Next year, the jobless rate should peak
at 17.7 percent, it said.