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IMF: Bailed-out Portugal Needs Extra Debt Effort

An ensuing drop in tax revenue has compelled the coalition government to step up austerity measures to shore up its finances, including what the finance minister calls an "enormous" increase in income taxes next year that will cost many workers the equivalent of a month's pay.

That has brought a broad outcry from opposition political parties and from trade unions, who have called a general strike next month. Recent demonstrations have drawn tens of thousands of people, though Portugal has not so far witnessed the street violence seen in Greece.

Portugal's economic reforms will take time to pay off and additional measures will be needed, the IMF said. With public debt set to peak at 124 percent of gross domestic product in 2014, Portugal's "room for maneuver has diminished."

Aware of the difficulties, the bailout lenders recently eased Portugal's deficit targets, to 5 percent this year and 4.5 percent next.

"While the program's core objectives remain within reach, the buffers in the program to cope with further adverse shocks have narrowed," the report said. "The program also remains short of policies that offer any upsides to near-term employment and competitiveness prospects."

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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