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Portugal Current Account Deficit Widens

James Boston
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Portugal Current Account Deficit Widens

Statistics Portugal has just announced provided details of the country’s Current Account Balance for the month of May. Portugal is continuing to run a deficit and this has expanded slightly from -€164.18M in April to -€409.4M in May.

Portugal completed it’s €78Bn bailout by the European Union (EU) and the International Monetary Fund (IMF) at the end of May. Successfully exiting this bailout program came with terms and conditions, one of which is that Portugal continues to control it’s public deficit, the target for 2014 is a deficit of no more than 4.0% of GDP and this must further fall to just 2.5% of GDP in 2015. Portugal under the EU/IMF had performed well with respect to managing the public deficit, in 2013 a target of 5.5% was clearly beaten as the country announced a deficit to GDP ratio of just 4.9% for the year.

There will be a lot of interest now in whether Portugal can continue to meet it’s deficit targets now that the EU/IMF is no longer taking a hands on role in the management of the Portuguese economy. Like many other periphery Eurozone countries, Portugal was taken down the road of austerity in order to rectify the public finances. Politically austerity measures are difficult to implement and the presence of the EU/IMF under the terms of the bailout made the introduction of cuts and the necessary reforms easier on the government as the finger of blame could be pointed at these external watchdogs.

Portugal has now regained it’s economic sovereignty and with it the responsibility to ensure that the program of fiscal rectitude continues. This is already proving challenging as recent civil service pay cuts introduced by the country’s centre right government have been overturned by constitutional court. Several other reform measures are also subject to ongoing judicial challenges and this is hampering the governments ability to meet the bailout targets.

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