Portugal will not need a second programme as long as it sticks to its bailout targets, said the European Commission’s top official in charge of Lisbon’s rescue loan. “The programme as such is very ambitious – we don’t believe the government can do more than what is in the programme,” Peter Weiss, one of a troika of officials overseeing the bailout, told reporters, on 3 April. “If this performance continues there is no reason to believe that this programme is not enough. Whether Portugal is able to convince markets is another question,” he added.

Last May, Portugal was granted a €78 billion loan to help it deal with its massive debt burden and banking stresses after it was frozen out of capital markets. Though the government is making “enormous” budget cuts, the economy is entering a second year of recession, with growth expected to contract by 3.3% of GDP this year after falling by 1.5% in 2011. Eurostat figures showed, on 2 April, that unemployment has continued to rise, hitting 15% in February, the third highest in the EU, though the Commission says it will even out to 14.4% by the end of the year. Although the country has met more than 90% of its targets under the bailout, completing 110 of 120 measures under the third review programme, its bond spreads have not come down in line with Ireland’s, with the cost of ten-year borrowing still above 10%. Speculation is rife that the country may need a second bailout, a suggestion that has not been ruled out by Portugal’s premier or by European Central Bank Vice-President and Portuguese national Vítor Constancio.

Portugal is undertaking a massive budget, banking sector and economic overhaul aiming to reduce a deficit worth 9.8% of GDP in 2010 to below the EU’s 3% by the end of next year. It is expected to return to bond markets in late 2013. Debt is expected to peak at 115.3% of GDP in 2013 though in absolute terms, it will continue to rise (growing from €188.5 billion to above €205 billion in 2015). Future progress in reducing the debt burden and completing the bailout is based on an assumption that growth will average 2% of GDP a year, despite the fact that it has not surpassed 1% over the last decade.

A Commission report on Portugal’s progress under the bailout, completed after a February troika mission, says that although “overall, the programme is on track,” it could be put at risk because of increasing unemployment, health care overruns and indebted state enterprises. Problems in Spain, Portugal’s main trading partner, could also dent the government’s progress, Weiss said, while a separate bailout for the autonomous island of Madeira – which is getting a €1.5 billion rescue loan in exchange for budget cuts – could be prone to slippages. The report paves the way for the disbursement of a €15 billion loan tranche to Portugal, €9.7 billion of which is to come from the EU. The IMF is meeting, on 4 April, to approve its €5.2 billion share.