Lisbon told to find more savings to meet deficit goal

The International Monetary Fund and the European Union estimate the Portuguese government will have to find further savings of around one billion euros in order to meet its deficit-reduction target for next year.

The additional austerity measures are required to offset an estimated budget overshoot for this year.

"Further measures, mostly on the expenditure side, will be taken to fill the gap arising from the shortfalls in 2011, and which could be about 0.6 percent of GDP [about one billion euros]," according to an update of the memorandum of understanding signed by the government, the IMF and the EU in May under the country's 78-billion-euro bailout plan.

On top of the belt-tightening measures put in place by the previous Socialist administration, the government of Prime Minister Pedro Passos Coelho, which took power in June, has introduced further measures, including bringing forward a planned increase in the value-added rate applied to electricity consumption and new tax surcharges for high-income individuals and companies earning over 1.5 million euros.

The government was targeting a reduction in its public deficit from 9.1 percent in 2010 to 5.9 percent this year, but estimates it might fall short of this by 1.3 percentage points. The target for 2012 is 4.5 percent of GDP, while the administration expects to bring the shortfall back within the EU ceiling of 3 percent of GDP the following year.

The government said Tuesday that a mission of officials from the IMF, the European Commission and the ECB would arrive on Thursday to help prepare the country's 2012 budget. The IMF said late on Monday that it had disbursed another tranche worth 3.98 billion euros of its share of the rescue loan, which amounts to 27.27 billion euros. The funds were released after the latest review of Portugal's efforts to get its financial house back in order.

"The new government has signaled its strong commitment to the program, and good progress has been achieved on policy implementation," the IMF's deputy managing director, Nehmat Shafik, said in a statement. "The authorities are addressing recent fiscal slippages to ensure the 2011 program targets are met."