José Sócrates, Portugal’s Socialist prime minister, on Wednesday pledged to cut the country’s spiralling budget deficit by more than two-thirds over the next four years after the shortfall reached a record high in 2009.
Speaking after the government unveiled its budget proposals for 2010, he said his overriding concern was to restore confidence in the Portuguese economy and stimulate growth to lift the country out of recession.
“Our key goal is economic recovery and for the good of the economy we will begin consolidating the deficit this year,” he said at a briefing for foreign journalists.
Government figures released late on Tuesday showed the deficit had risen from 2.7 per cent of gross domestic product in 2008 to 9.3 per cent last year, the highest level on record in Portugal.
Brian Coulton, head of global economics with Fitch Ratings, said the agency would not remove the negative outlook it placed on Portugal in September as a result of the budget proposals.
He said the measure implied a probable credit downgrade within 12 to 18 months. Other agencies have also recently warned Portugal of a possible downgrade to its long-term debt rating, which ranges from Aa2 at Moody’s to A+ at Standard & Poor’s.
“The 2009 deficit has been revised upwards and is almost three percentage points higher than forecasts made in September,” Mr Coulton said. “The budget does not target a huge adjustment this year, but it does contain some serious consolidation measures including a public sector wage freeze.”
Mr Sócrates proposes to cut the deficit to 8.3 per of GDP this year and to below 3 per cent by 2013.
“I have cut the deficit before. I know what the risks are and I know how to do it again,” he said, referring to 2005-2007 when his centre-left government reduced the deficit from 6.1 to 2.6 per cent of GDP in less than three years.
Greece’s debt crisis has raised concerns in international financial markets over high debt levels in other peripheral EU countries such as Portugal, Ireland and Spain.
But Mr Sócrates said the budget deficit and public debt in Portugal were in line with average levels in the EU and lower than in several other countries such as the UK, Spain and Ireland.
Any comparison between Portugal and Greece was “unjust, nonsensical and unsustainable” and would send an erroneous message to international markets, he said.
He emphasised that budget measures to cut the deficit were for “the good of the economy” and not designed to comply with the recommendations international economists or ratings agencies.
“The deficit increased in 2009 to enable the country to overcome the global economic crisis,” he said. “We began to emerge from recession in the second quarter of last year, before most other European economies, and we have to maintain stimulus measures to ensure a healthy recovery in 2010.”
The government forecasts 0.7 per cent growth this year after the economy contracted 2.7 per cent in 2009.