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Portuguese report Portuguese report
by Euro Reporter
2011-12-08 07:33:34
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Portugal says it will ‘definitely’ meet 2011 deficit limit

Portugal will “definitely” meet its budget-deficit limit for this year after including the transfer of banks’ pension funds to the state, Finance Minister Vitor Gaspar said. “We can be confident the 2012 budget limit will be met as well,” Gaspar said today at a presentation in London. The government aims to trim the budget deficit from 9.8 percent of gross domestic product in 2010 to 5.9 percent in 2011, 4.5 percent in 2012, and to the European Union ceiling of 3 percent in 2013. The Portuguese government said on Dec. 2 the value of the planned transfer of banks’ pension funds may reach 6 billion Euros ($8.1 billion).

Prime Minister Pedro Passos Coelho is cutting spending and raising taxes to meet the terms of a 78 billion-euro aid plan from the EU and the International Monetary Fund. Portugal, which followed Greece and Ireland in seeking a bailout, aims to return to bond markets at the end of 2013, Gaspar said. Journal de Negocios reported today that the government may narrow its budget deficit to about 4 percent of GDP this year after including the transfer of the banks’ pension funds.

Passos Coelho said in comments broadcast by television station SIC today that the transfer “will allow our deficit to be substantially below 5.9 percent.” The 2012 budget includes a plan to eliminate the summer and Christmas salary payments for state workers earning more than 1,100 Euros a month. Tax deductions will be reduced and the government plans to increase the value-added tax rate on some goods. Spending cuts in 2012 represent 4.4 percent of GDP, including reductions on health-care spending, while revenue increases represent 1.7 percent of GDP.


Portugal’s credit rating is cut to junk by Fitch on debt

Portugal’s credit rating was cut to below investment grade by Fitch Ratings due to the country’s rising debt level and weakening economy. The long-term rating was lowered one level to BB+ from BBB- with a negative outlook, Fitch said today in an e-mailed statement. Portuguese 10-year bonds fell after the announcement, with the yield at 12.14 percent at 1:09 p.m. in Lisbon. “The country’s large fiscal imbalances, high indebtedness across all sectors, and adverse macroeconomic outlook mean the sovereign’s credit profile is no longer consistent with an investment-grade rating,” Fitch said. The ratings of utility EDP-Energias de Portugal SA and telecommunications company Portugal Telecom SGPS SA are unaffected, Fitch said.

Prime Minister Pedro Passos Coelho is cutting spending and raising taxes to meet the terms of a 78 billion-euro ($104 billion) aid plan from the European Union and the International Monetary Fund. As the country’s borrowing costs surged, Portugal followed Greece and Ireland in April in seeking a bailout and now aims to return to bond markets in 2013. Barclays Capital said it will cut Portugal’s government bonds from its Euro Treasury Index at the end of the month after the Fitch announcement. The move makes the bonds “ineligible” for inclusion in the index, Huw Worthington, a fixed-income strategist in London, said today by phone.

Citigroup Inc. said it will keep Portugal’s bonds in its indexes after the downgrade. The company’s European Government Bonds and World Government Bonds indexes use rankings from Standard & Poor’s and Moody’s Investors Service, said Nishay Patel, a fixed-income strategist at Citigroup in London. “A one-notch downgrade from S&P will take Portugal out of the index,” Patel said.


The most unequal among the European economies

The study “Divided We Stand: Why Inequality Keeps Rising,” released Monday by the Organization for Economic Cooperation and Development (OECD), revealed Portugal remains one of the most unequal countries in the developed world, and the most unequal among the European economies. With a sharp gap in income distribution, the richest 20% earn over 6.1 times more than the poorest 20%. The average between rich and poor in the countries in the OECD study is 5.5 times. According the OECD report, over the last two decades, the bottom 20% in Portugal have seen their incomes rise by an annual average of 3.6% against 1.1% for those in the top earning bracket, while the richest 10% of the population earn up to nine times more than the poorest 10% in almost every Portuguese region.

The gap between rich and poor in the developed world has reached its highest level in over 30 years, and governments must act quickly to tackle inequality, says the OECD report. “This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, inequality will continue to rise.” said OECD Secretary-General Angel Gurría. Overall, 17 of the 22 OECD countries for which long-term data was available showed growing inequality.

The income gap has raised even in traditionally egalitarian countries, such as Germany, Denmark and Sweden, from 5 to 1 in the 1980s to 6 to 1 today, the OECD found. Based on the variations in the Gini coefficient (used to measure income inequality), Portugal ranks fourth in income inequality after the Israel, United States and Chile. The only European Union country where the gap between rich and poor narrowed was Greece, while, although inequality fell in Spain between 1994 and 2008, it has been on the rise in the last two years. Belgium, France and Hungary saw no change. In Chile and Mexico, the incomes of the richest are still more than 25 times those of the poorest, the highest in the OECD report.
Income inequality is much higher in some major emerging economies outside the OECD area. At 50 to 1, Brazil’s income gap remains much higher than in many other countries, although it has been falling significantly over the past decade.

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