LISBON Portugal is on track to meet its budget deficit target of 5.5 percent of GDP as agreed under an EU/IMF bailout but its debt is set to rise, the country's National Statistics Institute said on Monday.
European Union and IMF officials are currently carrying out a review of Portugal's economy and the government is lobbying the creditors to ease next year's budget deficit under the 78-billion-euro bailout.
The National Statistics Institute (INE) said that the public deficit fell to 6.1 percent of GDP in the second quarter of 2013, from 7 percent in the first quarter, thanks to higher tax revenues and spending cuts brought by austerity measures. It maintained its forecast that the deficit would be 5.5 percent of GDP at year-end.
But the country's total debt is seen rising to 127.8 percent of GDP this year, higher than a forecast of 122.4 percent of GDP made by Portugal's creditors in March, and up from 124.1 percent of GDP last year.
The deficit has come down from a peak of 10.2 percent of GDP in 2009. It stood at 6.4 percent at the end of last year.
The government has a target to cut it further to 4 percent of GDP next year but analysts say that will be difficult and the government is lobbying to have that target raised to 4.5 percent as it seeks to ease the conditions of its bailout.
"It will be hard to meet the current 2014 goal but we are not sure exactly what it will be. The troika must be discussing that with the government right now," said Filipe Garcia, an economist with Informacao Mercados Financeiros consultants.
Politics may also hamper the country's ongoing adjustment efforts. The ruling Social Democrats took a heavy beating in Sunday's local elections as voters punished them for the bailout's austerity measures.
Although Portugal returned to growth in the second quarter of this year, investors remain concerned about its ability to finance itself regularly in markets as the bailout programme ends in mid-2014 and debt yields remain stubbornly high.
"The key problem for Portugal is next year and to determine the details of a transitional programme, which is now the main scenario on the table," Garcia said.
The finance ministry said last week that the public deficit in January-August remained within the limits set under the bailout even though it rose from a year ago.
(Reporting by Daniel Alvarenga, Andrei Khalip and Sergio Goncalves; Editing by Axel Bugge and Susan Fenton)