Portugal will be able to reduce its budget deficit to 4 percent of gross domestic product (GDP) in 2014, Fitch Ratings said in a statement issued Tuesday in London.
This reduction – compared with a deficit of 4.5 percent in 2013 – will be partly driven by a provisional cut to civil service salaries deemed constitutional by the Constitutional Court, the agency said.
In a statement issued on 14 August, the Constitutional Court ruled that wage cuts in the public sector in 2014 and 2015 were constitutional but that cuts planned for 2016-2018 were unconstitutional.
“The latest decision of the Portuguese court to partially approve the expenditure measures reduces the risk for short-term consolidation and keeps the government on track to meet its fiscal targets this year,” said Fitch Ratings.
However, Fitch also believes that the reduction of the Portuguese budget deficit in 2015 will be limited to 2.7 percent of GDP, compared to the government’s more optimistic forecast, of 2.5 percent of GDP bolstered by improved economic growth.
Fitch Ratings added that the next Portuguese government voted in in the October 2015 elections will have to implement a tight fiscal policy if it wants to reduce public debt of 129 percent to 110 percent of GDP by 2023 (macauhub/PT)