March 31, 2011 / 4:53 PM / 7 years ago

Portugal 2010 budget deficit overshoots target

LISBON (Reuters) - Portugal overshot its 2010 budget deficit target after Europe’s statistics agency insisted on changes to calculations, but the finance minister promised on Thursday that the caretaker government would honor its debt payments even though it had no power to seek a bailout.

The deficit was 8.6 percent of gross domestic product last year versus a 7.3 percent target, Portugal’s National Statistics Institute (INE) announced.

The news sent the country’s 10-year bond yield up over 40 basis points to new euro lifetime highs, making it harder for Lisbon to finance itself without an international bailout.

Finance Minister Fernando Teixeira dos Santos said the higher deficit was caused by a change in calculation methods at the European agency, Eurostat, which required that the deficit include losses at nationalized bank BPN and the accounts of three public transport companies. Officials from Eurostat visited Portugal in January.

“It is a question of methodology. Eurostat has made the rules tougher,” said Cristina Casalinho, chief economist at local institution Banco BPI.

But she also said, “The negative element is that we are appearing more like Greece than we would like, indicating that in the past there must have been some carelessness in the accounts.”

Teixeira dos Santos said the impact of the changes to national accounts would be limited to 2010, and INE forecast this year’s budget deficit would still shrink to the government’s target of 4.6 percent of GDP.

Portugal’s troubles were already mounting following last week’s resignation by Prime Minister Jose Socrates, after parliament rejected his minority Socialist government’s latest austerity measures to help cut the budget deficit.

That prompted downgrades by credit rating agencies and warnings by economists that the country could be forced to seek a bailout soon.

However, Teixeira dos Santos said it was not possible for a caretaker government to seek a bailout.

“We have to face these difficulties and understand that the government doesn’t have the conditions nor the powers to ask for any kind of external help,” the minister told reporters.

The president is expected to decide later on Thursday to call a snap election for late May or early June. He is scheduled to issue a statement after a meeting of the advisory council of state at 1930 GMT.


INE said the government’s accounts for 2010 included losses at nationalized bank BPN of 1.8 billion euros. The government has tried to sell the bank, which was nationalized in 2008, without success.

Portugal faces financial pressure in the next three months from debt repayments; it will have to redeem 4.2 billion euros of bonds in April and 4.9 billion euros in June.

The IGCP debt agency said on Thursday it planned to issue up to 7 billion euros in Treasury bills in the second quarter of this year, with an auction planned for April 6 to sell up to 1 billion euros of 12- and 6-month paper.

The agency said any bond issuance would depend on market conditions. Later in the day, it said it would hold an extraordinary auction on Friday of a bond maturing in June 2012, in an effort to raise up to 1.5 billion euros.

Additional reporting by Daniel Alvarenga, Axel Bugge and Shrikesh Laxmidas; Editing by Stephen Nisbet and Andrew Torchia

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