September 2, 2012 / 5:04 PM / 8 years ago

Portugal PM defiant on austerity success

LISBON (Reuters) - Portugal’s government is managing to slash spending in line with commitments to its global lenders and the budget gap is shrinking, Prime Minister Pedro Passos Coelho said on Sunday, rejecting opposition claims his austerity plan has failed.

EU and IMF inspectors are conducting the quarterly review of the debt-laden country’s performance under their 78-billion euro bailout amid rising expectations they will have to grant the country some relief on tough fiscal goals it looks set to miss despite sticking to a tough austerity recipe.

Passos Coelho did not rule out “an adjustment or fine-tuning of the programme”, but gave no details.

Some economists suggest Portugal and its lenders could come up with a mixed solution combining a slightly easier deficit target for this year with some more spending cuts.

“I underscore that the deficit is falling, and above all thanks to spending and not to revenues, which leaves no margin to doubt the government’s compliance with its commitment of cutting state spending and consolidating public finances,” Passos Coelho said in televised remarks.

“The deficit has fallen despite the adverse behavior of tax revenues,” he said, adding that Portugal will carry on with its adjustment programme “with ambition so as to finalize it as soon as possible”.

Portugal has raised taxes, reduced spending and initiated deep structural reforms under the terms of the bailout to reduce its budget deficit.

The programme has driven unemployment to record levels of 15 percent and depressed tax revenues more than expected as the country struggles through its worst recession since the 1970s.

Earlier on Sunday, Antonio Jose Seguro, leader of the main opposition Socialists, said the government had “failed on all fronts ... because it implemented the recipe of austerity at all costs.”

He cited data prepared by parliament’s budget monitoring unit pointing to a deficit of 6.9 percent of GDP in the first half of the year, way above the year-end target of 4.5 percent.

He added that unemployment was above government forecasts while the economy was slumping more than expected.

Passos Coelho said politicians making such claims “could not be more wrong” as the country has made progress in regaining stability despite a very difficult economic setting in Europe and was not in an uncontrolled recession.

The government expects the economy to slump 3 percent this year, but then eke out modest growth in 2013.

Passos Coelho said the economic performance in the first half, with a second-quarter slump in GDP of 3.3 percent from a year earlier, was consistent with the government’s forecast for this year.

Reporting By Andrei Khalip; Editing by David Cowell

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