Portugal's finance ministry said Thursday it has agreed with Portugal Telecom to transfer the company's 2.8 billion euro ($3.7 billion) pension fund to the state treasury, a key step towards lowering the national budget deficit as the country tries to overcome a financial crisis.
The pension fund is equivalent to around 1.6 percent of Portugal's gross domestic product, and officials say the transfer will allow the government to meets its target of reducing the deficit to 7.3 percent of GDP.
Last year's deficit of 9.6 percent was the fourth-highest among the 16 countries using the euro currency, deepening market concerns that low-growth Portugal was racking up bigger debts than it could pay off.
That has sent the country's borrowing costs to euro-era record highs, though the yield on Portuguese 10-year bonds stood at just over 6 percent Thursday after hovering around 7 percent in recent times.
Germany's 10-year bonds, a benchmark of global lending safety, stood at 2.7 percent.
Even though it has had no difficulty raising money on financial markets, Portugal is viewed as a likely candidate for a bailout like those provided for Ireland and Greece. Anticipated sluggish growth and higher welfare payments from rising unemployment — now around 11 percent — are expected to weigh on efforts to cut the country's debt load.
The government, however, denies it needs help, saying it intends to cut the budget deficit to 4.6 percent next year with an austerity package that includes public sector pay cuts and tax hikes.
The finance ministry said in a statement it had reached agreement with Portugal Telecom for the transfer of the pension funds by the end of the year. The deal, which has been under negotiation for weeks, was widely expected.
The government has retained special voting rights in the formerly state-owned company, which is now one of the country's largest listed companies. The government's so-called "golden share" in PT grants it the final say in strategic decisions.
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