Portugal may struggle to bring its deficit in on target without additional expenditure cutting measures due to a shortfall in corporate and personal taxation revenue, the International Monetary Fund warned in its second post-program monitoring report released Thursday.
The IMF described their being a “tangible risk” that the state would fail to meet its budgetary target of 2.7% of gross domestic product with additional measures to curtail costs as, based on the figures through to the end of May, “it is probable” that the targets set for both corporate and personal income tax fail to be met.
The report also acknowledges that while revenues returned by value added tax had risen over the first five months due in part to the recovery in consumption levels, this figure was also artificially boosted by a slowdown in reimbursements due to a new system of procedures getting introduced.
Hence, the IMF maintained its own forecast that the Portuguese state would close the year with a 3.2% deficit in terms of GDP.
Furthermore, the Portuguese government is reported to have agreed “that budgetary consolidation should stem more from the side of expenditure” but that any “concrete measures” would have to await the 2016 state budget with the IMF also calling for “national expenditure rules that define objectives for every level of government.”
The 2015 budget set aside around €970 million for contingencies with the IMF backing the establishment of such reserves as both the medium term financing needs “remain high” with clear and present external risks with Greece identified as one such factor needing to be taken into consideration.
The report further added that while the state had acted to even out its scheduled repayment requirements, it had also issued three quarters of its planned debt for the year by the end of May with the resulting €15.9 billion reserve cushion enough to meet the state’s requirements through to March 2016.
The potential for the sale of Novo Banco, the asset endowed entity emerging out of the collapse of the Éspirito Santo group, to return less than the €4.9 billion ploughed into the failed bank was also on the list of the IMF’s concerns with its potential retroactive effect on the 2014 state budget.
Hence, the Washington institution also got in an early appeal for the government taking office following elections in autumn to continue with a reformist agenda and highlighting the labour market and the state sector as requiring continued attention.
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