Lisbon: Portugal's budget gap widened in the first eight months of the year, indicating the government may struggle to rein in the euro-region's fourth-largest deficit as its borrowing costs surged to a record.
The central government's shortfall rose to 9.19 billion euros (Dh44.1 billion) from 8.74 billion euros a year earlier, the Finance Ministry said on Monday.
Tax revenue rose 3.3 per cent, more than budgeted, and spending increased 2.7 per cent, in line with budget estimates, the ministry said.
Portugal's borrowing costs rose to a euro-era record on Monday, on concerns over the government's ability to rein in the region's fourth-largest budget deficit while avoiding a return to recession.
While the extra yield investors demand to hold Portuguese debt rather than German equivalents eased to 388 basis points yesterday, that's still close to the level Greek bonds were trading at when the European Union offered emergency loans to avoid default.
"The deficit isn't narrowing, in contrast with the general trend of other euro zone countries," said Giada Giani, an economist at Citigroup in London. "This puts Portugal in a worse position relative to Greece, or Spain, or Ireland."
Significant narrowing
She sees the overall public deficit at around 9 per cent of gross domestic product at the end of 2010 unless there's "significant narrowing" in the last few months of the year.
The government aims to narrow the overall deficit to 7.3 per cent of GDP in 2010 from last year's 9.3 per cent, the region's largest after Ireland, Greece, and Spain.
Portugal has pledged to reach the target, with Finance Minister Fernando Teixeira dos Santos saying on September 9 that the country "can't afford" not to. It intends to reach the EU limit of 3 per cent in 2012.
By contrast, Spain slashed its seven-month central government deficit in half from a year earlier, and the yield on its 10-year debt fell to 4.22 per cent today from 4.88 per cent on June 16. Ireland and Greece also reduced their budget deficits in the first eight months.
