Portugal’s strict implementation of austerity policies has won the country credibility on the financial markets and a bit of flexibility with its creditors, Prime Minister Pedro Passos Coelho told lawmakers Thursday as he survived two censure motions.
“If the government’s policy didn’t measure up to the difficult adjustment process, our creditors would never have permitted a revision of the public deficit target without a second longer and more difficult (bailout) programme,” said the head of the ruling centre-right coalition government.
With Portugal’s economy in a deep recession and unemployment at record levels, the EU and IMF relaxed the government’s targets last month to lower the public deficit under its 78 billion euro ($101 billion) bailout.
This year’s public deficit target was raised to 5.0 percent of gross domestic product from 4.5 percent, while that for 2013 was increased to 4.5 percent of GDP from three percent, easing pressure on the government.
“The revision of these objectives is the result of the credibility that we have earned among the international institutions,” he said.
A successful exchange on Wednesday of billions in bonds due next year, for new debt due in 2015 was also a fruit of the country’s renewed credibility among investors, he added.
But on Wedneday, Fitch Ratings warned that there was still a “long road” before Portugal truly returned to the bond markets.
“The weak economic outlook in Portugal, the size of the fiscal adjustment and fragile nature of the eurozone sovereign debt market means there would need to be a significant improvement in sentiment for it to return to the market in full next year,” Fitch said in a special note.
The censure motions, which stood no chance of passing as the ruling coalition has a safe majority, followed the announcement by the government on Wednesday of a generalised income tax hike to replace earlier proposals that met with stiff popular opposition.
Portugal still needs to come up with 4.3 billion euros in additional savings and taxes in its 2013 budget to get the next installment of aid under its bailout.