Portugal's public deficit eased only slightly to 8.8 per cent of GDP by the end of June, but Lisbon still expects to reach its ambitious year-end deficit target of 5.9 per cent as agreed under its EU/IMF bailout, official data showed today.

The numbers are not as promising as we hoped," prime minister Pedro Passos Coelho was quoted as saying before the National Statistics Institute (INE) released the data.

The deficit for the 12 months through June eased from a gap of 9.3 per cent of GDP by the end of March and fell from a revised 9.8 per cent for all of 2010, the INE said.

But Mr Passos Coelho, whose government took over in June, told Lusa news agency that "with the data that we have today, with the measures that were announced in the framework of the latest troika (of lenders) evaluation, we plan to achieve the deficit target this year."

Portugal is fighting to differentiate itself from Greece, which many investors say could be heading for a debt default after a disappointing performance under its bailout programme and a steep economic decline.

Since coming to power with a solid parliamentary majority, Passos Coelho's centre-right government has announced a range of additional taxes and spending cuts, some going beyond the terms of the 78-billion-euro EU/IMF bailout.

The data released today, which was included in a report on Portugal's deficit excesses sent to Eurostat as required under EU rules, showed the INE maintained both the 5.9 per cent of GDP deficit forecast for 2011 and the year-end debt-to-GDP forecast of 100.8 per cent.

However, INE also revised the country's budget deficit for last year to 9.8 per cent of GDP from 9.1 per cent due to spending and debt which the autonomous region of Madeira had previously failed to report. The problem was discovered earlier this month, causing embarrassment for the government.

"Obviously the fact that the accounts are falling behind expectations is an added risk, but the measures already announced must have already taken into account this less positive performance, which was known," said Teresa Gil Pinheiro, an economist at BPI bank in Lisbon.

She said Portugal was likely to meet the deficit target of 5.9 per cent, which is also BPI's forecast for the end of 2011.

Portugal's benchmark 10-year bond yield was little changed on the day after the INE report, at 12.57 per cent after falling sharply yesterday from nearly 13 per cent.

Separately, finance minister Vitor Gaspar vowed today to press ahead with structural reforms to boost the economy's competitiveness, and said the state would "drastically reduce" its presence in the private sector, which should improve the business environment soon in the recession-hit economy.

One of the main risks to Portugal's performance under the bailout is a global economic slowdown which could undermine its plan to return to growth in 2013 after two years of recession.

Reuters