* Core public deficit hits 799 mln euros in Jan-Feb
* Tax revenues drop, spending higher
* Portugal may well need extra aid this year -analysts
* Debt yields shrug off bad numbers, restructuring worries
By Andrei Khalip
LISBON, March 21 Portugal's core public deficit
nearly tripled in the first two months of 2012, showing a
deepening economic slump is denting tax collection and stoking
concerns the country may miss its budget targets and follow
Greece in requiring more rescue funds.
The gap widened to 799 million euros ($1.06 billion) from
274 million euros a year earlier, when the deficit had slumped
by more than 70 percent, the finance ministry's budget office
said on Tuesday.
But, investors appeared to shrug off the numbers and bought
1.99 billion euros in Treasury bills on Wednesday at the lowest
yield levels since late 2010, before the country resorted to a
78-billion-euro EU/IMF bailout in May last year.
Still, the growing deficit shows the debt-laden nation has
its work cut out to hit fiscal targets under the bailout even
after closely following the creditors' austerity recipe.
"With a weakening economy you collect less taxes, it's
simple. Portugal is considered a good pupil in terms of
austerity, so if something is not working, something probably
has to change in the adjustment programme," said Filipe Garcia,
head of Informacao de Mercados Financeiros consultants.
"Unlike with Greece, the blame cannot be put on Portugal.
But I think Portugal needs more money," he said, explaining that
additional funds are needed principally in the economy, which
would require a combination of less stringent austerity and
measures to allow financing to reach companies.
Earlier this week, Finance Minister Vitor Gaspar dismissed
suggestions that Portugal, facing its worst recession since the
1970s, is slipping behind the deficit reduction and reform
timetable set under the bailout programme. He ruled out asking
for more rescue funds.
Wednesday's T-Bill auction had strong demand, with traders
saying the market was at least not overly worried about a
Greece-like debt restructuring while it was still awash with
cash after European Central Bank's cheap liquidity injections.
The country sold 2 billion euros in Treasury bills at the
"It's a decent offering which shows that fears of a knock-on
effect from Greece's debt restructuring do not seem to be
reflected on Portugal's short-term debt now. The whole sovereign
risk receded and this sale helps the sentiment," said Orlando
Green, fixed income strategist at Credit Agricole in London.
Benchmark 10-year bonds yielded 12.7 percent, down from the
settlement level of 12.86 percent on Tuesday, when they shed
almost one percentage point. That is still almost 6 percentage
points above those of Ireland, which was bailed out in 2010 and
has returned to modest growth since.
But many economists fear the recession-hit Portugal will be
forced to follow Greece's lead at least in requesting a new
bailout. The government estimates GDP will slump 3.3 percent
this year after a 1.6 percent decline in 2011.
"We do think Portugal will need additional assistance this
year and that we're heading for a second package, but this
(deficit) data definitely won't be a trigger for any requests,"
said Jurgen Michels, a Citi economist in London.
"The data shows it will be difficult to reduce the deficit
in near term, but I think it's a bit too early to say if the
targets are compromised, as the monthly data is volatile."
Under the terms of the bailout, Portugal is supposed to
return to the bond market in September 2013. Most economists say
it is unlikely to be able to fully finance itself in the market
so soon and will need to be supported longer, which will only be
possible if it keeps meeting its fiscal goals.
The data showed state spending in the first two months of
the year edged up 3.5 percent to nearly 7.06 billion euros,
which included extraordinary transfers to public companies like
the RTP broadcaster.
Revenues fell 4.3 percent 6.26 billion euros, which
authorities attributed mostly to dividend payments by companies
at the end of last year instead of early 2012, when taxes
Portugal's government has hiked taxes across the board and
has been cutting spending to reduce the budget deficit as agreed
under the bailout.
It met last year's target of 5.9 percent of GDP for the
overall deficit, to a large extent thanks to extraordinary
transfers of bank pension funds to state coffers, reducing the
gap from 9.8 percent in 2010. This year's goal is 4.5 percent.