Portugal lowered its budget deficit to the targeted 7.3 percent of gross domestic product last year, a senior official said Thursday, but the financial crisis engulfing the fragile country showed no signs of abating as its borrowing costs surged again.
Portugal is scrambling to correct its fiscal policies amid market fears that it won't be able to meet its debt obligations and will need a bailout like Greece and Ireland.
Portugal's high debt load and economic frailty have made investors reluctant to lend it money unless they are given a high return for their risk. But markets are also worried that Portugal may not be able to afford the high cost of its loans amid a predicted downturn stemming from a debt-reducing austerity program.
Market nervousness about Portugal showed up again Thursday when the yield on Portuguese 10-year bonds rose to 7 percent — matching a euro-era record reached last November — before falling back slightly.
By comparison, benchmark German bonds were steady at 2.9 percent.
The yield rise didn't prevent the government debt agency from announcing an auction of 3- and 9-year bonds next Wednesday. It said on its website it intended to raise at least 750 million euros ($975.6 million) and as much as 1.25 billion euros ($1.63 billion).
Portugal raised 500 million euros in a Treasury bill sale Wednesday but had to accept a steep increase in interest rates to entice investors who are demanding a higher premium to risk their money on more indebted countries.
The average interest rate of 3.7 percent was close to twice the 2 percent rate Portugal paid on similar bonds in September and was way up from the 0.6 percent it paid a year ago.
The government has repeatedly ruled out a bailout, saying it doesn't need help to contain the debt crisis and restore economic health.
Secretary of state for the national budget Emanuel Augusto Santos told reporters that Portugal met its deficit target of 7.3 percent last year.
Portugal's deficit in 209 was 9.3 percent — the fourth-highest in the eurozone. The government is aiming for a deficit of 4.6 percent this year.
A key factor in last year's deficit reduction was Portugal Telecom's transfer of its 2.8 billion euro pension fund — equivalent to around 1.6 percent of GDP — to the state treasury.
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