(MENAFN - AFP) Portugal's creditors arrived back in Lisbon Monday to assess the country's progress under its 78-billion-euro bailout as Brussels signals it will not cede to a request for the country's fiscal targets to be relaxed.
Payments of the next tranche of bailout loans to Lisbon will depend on a successful review by Portugal's "troika" of lenders -- the International Monetary Fund, the European Commission and the European Central Bank -- of its progress in implementing economic reforms agreed in exchange for the financial aid.
The assessment by troika auditors will be the first since a political crisis erupted in July when the resignation of two key ministers pushed the government to the verge of collapse.
It could be the most important review since the bailout was granted in May 2011. The rescue programme is scheduled to expire in mid-2014.
Portugal is struggling to meet its deficit target of 5.5 percent of gross domestic product for this year as government reforms aimed at streamlining the government repeatedly get bogged down by legal challenges.
Portugal's Constitutional Court last month struck down a reform allowing civil servants to be laid off if they fail to requalify for a new job. It was the third time that the court has restricted the scope of a government austerity measure.
The ruling has helped push Portugal borrowing costs to levels near which it was forced to seek international aid two years ago.
The yield on Portuguese government 10-year bonds stood at 7.4 percent on Monday.
Deputy Prime Minister Paulo Portas last week urged Portugal's international lenders to ease its 2014 public deficit reduction target from 4.0 percent to 4.5 percent of GDP.
The appeal got a cool response from Brussels, with the head of eurozone finance ministers, Dutch Finance Minister Jeroen Dijsselbloem, saying Lisbon should stick to the deficit reduction targets already agreed.
"I don't think maintaining the discussion (over deficit targets) sends out a good signal," he said Friday at a meeting of eurozone finance minister in Vilnius.
The "troika" has agreed to relax Portugal's deficit targets twice before, in March and September 2012.
"Someone has to explain to us how we are going to be able to go from a deficit of 5.5 percent in 2013 to a deficit of 4.0 percent in 2014. We have never seen such a strong reduction in the deficit," said Antonio Saraiva, the head of the Portuguese Industry Confederation, after meeting with Portas on Monday.
Prime Minister Pedro Passos Coelho's centre-right government has imposed relentless spending cuts and hefty tax increases since coming to power in June 2011, causing its popularity to sink.
Despite signs of growing voter weariness with austerity, the government has announced fresh austerity measures, including an average 10 percent cut in the pensions of most government workers, which have been loudly opposed by unions.
Portugal is struggling through its deepest downturn since a right-wing dictatorship was toppled in 1974, but some signs of improvement have emerged.
The country posted growth of 1.1 percent in the second quarter as exports soared, putting an end to more than two years of continuous contraction, while the jobless rate fell to 16.4 percent from 17.7 percent the first quarter.
Portugal will test market appetite for its debt on Wednesday when it hopes to raise 1.0-1.25 billion euros in a sale of three- and 18-month treasury bills.
The Portuguese government had originally planned to raise 1.5 billion euros (2 billion) in the auction but then lowered its target.
Under the terms of its bailout, Portugal should return to the long-term bond market next year although some analysts doubt it will be possible.