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Gov’t measures welcomed Prime Minister José Sócrates was this week the recipient of unprecedented praise as he unveiled a host of measures to quell fears Portugal could follow in Greece’s footsteps and further undermine confidence in the financial stability of the Euro Zone and its members.
International markets and respected financial bodies have come out in unexpected support of a wide range of austerity measures announced by the Government to cut its spiralling debt. A hugely successful bond issue on Wednesday, where demand for Portuguese Government bonds far exceeded the supply, was the first sign that international markets were unperturbed over recent concerns for the country’s mid and long-term financial stability. Portugal raised close to a billion euros from the sale of its bonds after initially hoping to rake in only around two-thirds that figure. Meanwhile, the Finance Minister has said he expects state coffers to receive an additional six billion euros from planned sales of state-owned companies and said these revenues will help control public debt. Teixeira dos Santos also said net revenues of €960 million from the wave of upcoming privatisations would reduce state debt from 90.1 percent of GDP in 2012 to 89.3 percent of GDP in 2013. A further indication of growing confidence in Portugal’s economy and measures being implemented by its Government, came on Wednesday in a statement of support issued by the Organisation for Economic Co-operation and Development (OECD). Expenditure restraint and fiscal strategies released by Portugal to bring the budget deficit below three percent by 2013 (from a figure of 9.3 percent in 2009) were welcomed by OECD Secretary-General, Angel Gurría. “Efforts to make the tax system more broad-based and to minimise any negative impact of fiscal consolidation on potential economic growth are welcome. “The OECD welcomes the authorities’ consolidation strategy, which goes in the direction of maintaining market confidence, supporting growth and ensuring fiscal sustainability” Mr Gurría said on Wednesday, concluding: “The OECD stands ready to support the Portuguese authorities in their efforts.” Amongst measures announced this week by the Government, are expenditure restraint, which is planned to be most prominent in the areas of public investment, personnel management and compensation, and social transfers, other than pensions and unemployment benefits. Measures will also be introduced to raise revenue including some broadening of social security contributions and personal income tax, while maintaining current rates. Another belt-tightening move is the two-year delay of the high-speed rail link between Lisbon to northern Oporto and the Spanish city of Vigo, and to push the retirement age of civil servants up to 65 from its current figure of 63. Tax rebates will also be slashed, the Finance Ministry has said. The Prime Minister has spent the past week locked in talks with political parties, regional authorities, trade unions and bosses as he sought to gain consensus on his cabinet’s Stability and Growth Programme. “I am sure everyone will act responsibly so Portugal can defend its economic credibility, confidence in our economy, and the conditions for financing our economy”, José Sócrates was quoted as saying by the Lusa News Agency after these sometimes contentious meetings. He refuted criticism that the Programme was too soft, saying that Portugal was one of the few Euro Zone countries which has undertaken to reduce its budget deficit in 2010. “The Government will concentrate on reducing state spending, a task which is probably the most difficult and demanding”, he said, adding that it would be easier to raise taxes, but that such an option would “harm our economy”. The belt-tightening plan will be tabled for approval by Parliament in just under a fortnight. While the ruling-Socialists are a minority in the House, the Social Democrats and the Christian Democrats have both indicated they were willing to abstain from voting in order to ensure the passing of the Stability and Growth Programmme.
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