IMF and EU warn Portugal against ‘loosening’ budget effort

(LISBON) – Portugal’s former international creditors voiced
concern Thursday over a “loosening” of budget discipline and urged the
new Socialist-led government to do more to spur economic recovery.

International Monetary Fund (IMF) said Portugal’s 2016 draft budgetary
plan “implies a loosening of the fiscal stance” after its experts
finished a week-long review in Lisbon.

Meanwhile the European
Commission and European Central Bank, whose officials also participated
in the review of Portugal’s finances, said “progress in structural
reforms lost momentum during 2015” and that “an effort to reduce the
underlying structural budget deficit needs to be significantly

The IMF and EU provided Portugal with its three-year, 78-billion-euro bailout that ended in May 2014.

Brussels still has considerable leverage over eurozone member Portugal under EU budget rules.

taking office in November, Prime Minister Antonio Costa has sought to
pull off a tricky balancing act, satisfying both Brussels and placating
the domestic discontent over the years of austerity cutbacks which
helped bring the Socialists to power.

Lisbon had hoped to bring
its public deficit — the shortfall between government revenues and
expenditure — down to 2.6 percent of economic output this year.

Last year, Portugal’s budget deficit came in at 4.2 percent, well above the EU’s 3.0-percent limit.

after the Commission threatened to reject its first draft budget, the
Portugese government on Thursday accepted pushing down the budget
deficit to 2.4 percent.

“The Portuguese authorities have submitted
proposals which are going in the right direction,” EU Economic Affairs
Commissioner Pierre Moscovici said in Brussels.

“There is still
work to do however and I hope we will reach an agreement within the next
few hours,” he told a briefing on the European Commission’s winter
growth forecasts.

The government also cut its 2016 growth forecast
to 1.9 percent from 2.1 percent after Brussels deemed the figures too

The IMF is more pessimistic about economic growth, predicting a 1.4-percent increase in gross domestic product.

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