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UPDATE 1-EU, IMF to give Lisbon to 2015 to cut deficit -sources
March 11, 2013 / 11:06 AM / 5 years ago

UPDATE 1-EU, IMF to give Lisbon to 2015 to cut deficit -sources

LISBON, March 11 (Reuters) - Portugal international lenders will give the bailed-out country an extra year, until 2015, to cut its budget deficit below 3 percent of gross domestic product, sources close to the latest lenders’ review said.

The concession acknowledges the impact of Europe’s recession on the country, and the efforts Lisbon has made to hit the targets set under its 78 billion euro rescue, they said.

“There’s a great adjustment effort, which is being recognised. There is a consensus (among the lenders) that the external setting has worsened and that Portugal needs another year to lower the deficit below three percent,” one source said.

Inspectors from the “troika” of lenders - the European Commission, European Central Bank and International Monetary Fund - are in Lisbon wrapping up their latest quarterly review of the economy and bailout adjustments this week.

They can recommend an easing of targets to the three lending bodies.

“This (3 percent) goal will be reached in 2015. This year’s recession will be higher, at around 2 percent, which makes budget execution more difficult,” the source in Lisbon added.

The finance ministry declined to comment.

The government had said it might need an extra year to narrow the deficit due to the worsening economic situation. Last month it downgraded its 2013 forecast to a GDP contraction of 1.9 percent from 1 percent.

The lenders already eased Portugal’s deficit goals last year after tax revenues fell short, undermined by a slump in consumer demand and a rise in unemployment.

Lisbon’s current targets are to cut the deficit to 4.5 percent of GDP this year from last year’s 5 percent and then to 2.5 percent in 2014.

“The recession in Europe is an important piece of data and that is why the troika is flexible,” another source said, adding that Portugal’s external accounts were being adjusted more quickly than envisaged under the bailout.

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