June 9, 2020 / 7:52 PM / a month ago

UPDATE 1-Portugal expects deficit of 6.3% of GDP and record public debt in 2020

(Adds public debt figures, detail on budget, quotes)

LISBON, June 9 (Reuters) - Portugal’s government expects a deficit equal to 6.3% of GDP in 2020 because of the coronavirus outbreak, budget secretary of state Joao Leao said on Tuesday, a painful setback after the country had its first budget surplus in 45 years at the end of 2019.

Public debt is expected to increase to 134.4% of GDP from 117.7% in 2019 - finance minister Mario Centeno said, outstripping its previous peak of 132.94% at the height of the 2011-2014 GDP debt crisis.

The pandemic dented a 4.4 billion euro hole in public revenues, amounting to 5% of the state budget, Leao said, largely due to a fall in tax and social security payments. Government spending was 4.3 billion euros higher than predicted, Leao said.

The announcement came as part of a supplementary budget to be voted on in Parliament next week including various support measures to support the economy through the pandemic, including 500 million euros for the national health service, 400 million for digital education and 180 million to support incomes.

Predictions of the extent to which growth will drop this year range from the government’s own 6.9% to the International Monetary Fund’s 8%.

Centeno, who earlier announced his resignation on June 15 with Leao as his replacement, deemed the crisis to come “very very severe, but temporary.”

The country is in the final phase of its lockdown exit plan, but some measures remain in place in Lisbon and public spaces such as stores and restaurants still have stringent health and safety rules.

Data on electronic payments showed the volume of transactions, which fell by half within a week of the coronavirus outbreak, has returned almost completely to pre-pandemic levels, Centeno said, a sign that consumer behaviour was returning to normal.

But the open nature of Portugal’s export-oriented, tourism-dependent economy left it particularly exposed to sectors hit hard by the pandemic, the finance minister said. (Reporting by Victoria Waldersee, Catarina Demony, Sergio Goncalves; Editing by Leslie Adler and Nick Zieminski)

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