Portugal to cut state wages in 2014, exit bailout


By Sergio Goncalves

LISBON, Oct 15 (Reuters) - Portugal presented its 2014budget on Tuesday, which it hopes will lead the country out ofits bailout programme and return it to normal debt marketfinancing along with its first positive economic growth since2010.

But the budget promised heavy spending cuts to hit publicsector wages and pensions in 2014 as harsh austerity continuesto take its toll on the country which has gone through its worsteconomic crisis since the 1970s under the bailout.

The budget bill also showed the country will overshoot its2013 budget deficit goal as it did in 2012.

"The budget's proposals are difficult, but decisive for ourfuture," said Finance Minister Maria Luis Albuquerque at a pressconference. "It represents the government's determination toaccomplish the adjustment programme in June and start a cycle oflasting consolidation and economic growth."

The country's 78-billion-euro bailout formally ends inmid-2014 when Portugal should return to financing itselfnormally in bond markets, which it stopped doing in 2011 whenits debt crisis first hit.

The budget bill showed Portugal plans to issue 10.5 billioneuros in government bonds next year to help meet bondredemptions of 13.5 billion euros and net financing needs of11.6 billion euros. The lenders are still to contribute nearly 8billion euros in 2014 until the end of the programme.

The budget aims to slash the budget deficit to 4 percent ofGDP next year from 5.9 percent in 2013. This year's budgetdeficit target agreed with the lenders was 5.5 percent, after6.4 percent in 2012. Still, the finance minister played down theovershoot this year, saying the country was "on a good path" andmeeting its commitments.

The budget sees gross domestic product expanding 0.8 percentin 2014 -- restoring positive economic growth to Portugal forthe first time since 2010 -- after a decline of 1.8 percent thisyear.

The budget bill includes wage cuts for public sector workersranging from 2.5 percent to 12 percent on monthly salaries ofover 600 euros. Pension cuts should bring savings of 728 millioneuros.

The government envisages total spending cuts worth 3.18billion euros out of a total budget consolidation effort of 3.9billion euros next year.

The government and the lenders have acknowledged that thedeficit targets and Portugal's return to market financing facechallenges from the Constitutional Court that has previouslyrejected some government austerity measures. The opposition haslong pledged to challenge new spending cuts in court.

Key elements of the budget were announced at the beginningof the month with the completion of the latest review of theeconomy by officials from Portugal's bailout lenders, theEuropean Union and International Monetary Fund.

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