Troika study Portugal’s new austerity measures

Portugal’s international creditors started Monday to study new austerity measures proposed by the government to meet its deficit reduction commitments after a court invalidated some previous cuts.

Auditors from the troika of the European Union, International Monetary Fund and European Central Bank are making an additional visit to Lisbon before a scheduled evaluation in May.

Their mission was launched after the Constitutional Court on April 5 rejected several austerity measures contained in the 2013 budget which deprived the government of around 1.3 billion euros ($1.7 bn) in savings, or about 0.8 percent of gross domestic product (GDP).

The ruling made it difficult to reduce the public sector deficit to 5.5 percent of GDP to keep Portugal eligible for funds under its 78-billion-euro bailout from the EU and IMF.

After the court’s decision, centre right Prime Minister Pedro Passos Coelho vowed not to abandon austerity while pledging to reduce public spending by around 1.2 billion euros this year.

Passos Coelho plans to cut ministry operating budgets by 600 million euros and to rein in spending for health, education, social security and public enterprises by a similar figure.

In a letter to the troika before its visit, the prime minister outlined a unique salary grid between the private and public sectors and a rapprochement between the pension systems, the Lusa news agency reported.

At the end of its last quarterly review in late March, Portugal was tasked with presenting a new plan for cutting public expenditures by four billion euros by 2015.

Approval of the new measures by the troika is all the more important as it is the condition for the disbursement of the next instalment of two billion euros under the bailout.

The definitive agreement by the Eurogroup of eurozone finance ministers for a seven-year extension to reimburse the loans granted to Portugal also depends on it.

One of the government’s main goal is to retain the confidence of creditors because to ease Portugal’s return to the international bond markets.