The country chopped 2.3 percentage points of its 2015 deficit of 4.4% of GDP, bringing the figure down to 2.1% – its lowest level since Portugal returned to democracy.
The news also marks the first time Portugal has kept its deficit within the limits demanded by eurozone rules since 2009 when the country became subject to a procedure to bring down member states’ “excessive” budget gaps.
Under the procedure, Portugal had to comply with recommendations made by the European Council in order to gradually trim the deficit down to size. Last year it was threatened with fines after failing to do so.
Portugal also required a €71bn ($82bn) bailout in 2011, when its deficit hit more than 11%. Under that programme a number of strict spending and tax measures were put in place, but since taking office in late 2015, anti-austerity prime minister António Costa has been rolling these back.
He restored public sector wages, working hours, holidays and pensions to pre-bailout levels, as well as reversing labour market reforms.
Yet, as well as slashing the deficit, unemployment is falling, tens of thousands of jobs have been created, and the economy is growing.
Costa stresses that this shows there is an alternative to austerity, which he argues would have stifled Portugal’s economy.
The International Monetary Fund had warned against a loss of momentum in Portugal’s austerity efforts, and trimmed its growth forecasts for 2016 from 1.4% to 1.0%.
In recent months, however, the tide has turned away from strict austerity policies in Europe and beyond. In February, the fund revised its forecast back up to 1.3%, which it expects Portugal will maintain this year.
Commentators have voiced concerns that a sluggish 1.3% growth will leave Portugal unable to pay its hefty debts, worth an estimated 130.4% of GDP last year according to the country’s national institute of statistics.
