Portugal passes bailout review

Portugal has passed the third review of its €78 billion bailout programme by the European Union and IMF but the country's economic slump will deepen this year, finance minister Vitor Gaspar said today.

Officials from the European Union and IMF will recommend disbursement of the bailout's next tranche of €14.6 billion after finding Portugal has met fiscal goals and launched reforms to make the economy more competitive, the minister said.

"The result (of the evaluation) was positive despite unfavourable conditions," Mr Gaspar told journalists. "The mission (of officials) confirmed the fulfillment of the criteria demanded by the terms."

But Mr Gaspar changed the government's outlook for this year's economic slump - the deepest since the 1970s - to a contraction of 3.3 per cent from a previously forecast 3 per cent decline. He also said unemployment, which is already at record highs, would worsen both this year and next.

The jobless rate will now reach 14.5 per cent, up from the government's previous estimate of 13.7 per cent.

European officials have been eager to distance the euro zone's second most risky country from troubled Greece. But many economists say the country may have to seek more emergency funding or even be forced to restructure its debts like Athens.

Portuguese bonds have failed to fully benefit from the rally in other European peripheral government bonds in recent weeks.Portuguese 10-year bond yields rose slightly today to13 per cent.

Mr Gaspar ruled out any possibility of seeking more funding.

"We will not ask for more time or money," he said, adding there was no discussion of that during the EU-IMF team's evaluation of the economy. "There will be no signal coming from the government other than meeting the terms of the programme."

Portugal's centre-right government has raced ahead with reforms of the uncompetitive economy in recent weeks, especially of its rigid labour market, in an effort to win approval from creditors and ensure the country can ride out its debt crisis.

Under the bailout, Portugal must cut its budget deficit to 4.5 per cent of gross domestic product this year from 5.9 per cent last year - a goal that was only met thanks to a one-off transfer of banks' pension funds to the state.The lenders are expected to issue a statement on the review later in the day.

Reuters