According to a document from the Ministry of Finance, the Portuguese government is now forecasting for 2012 a 5.4% deficit from the 4.5% signed initially after the bailout – with the approval of the troika of international lenders.

The new upward revision of the deficit – well above the target signed with the European Central Bank, the International Monetary Fund and the European Commission representatives – was discussed in a Cabinet Meeting held at the end of the year and forecasts new measures to put a lid on the deficit, according to an internal memo from the ministry published this weekend in the Portuguese daily Diário de Notícias, which some sources from the ministry say is only a draft.

This overrun in the deficit is explained by last year’s transfer of banks’ pension funds to the state, to artificially reduce the government’s deficit and make possible the compliance with the 5.9% deficit target defined for 2011. However, even if the transfer made it possible in 2011, the lack of a similar solution implies that the government will have to beef up its efforts to reduce the deficit to a lower level, says Diário de Notícias.

The government plans to reduce the deficit to 5.4% in 2012 with extraordinary measures which represent 0.3% of the GDP – “namely through the sale of gambling concessions and state-owned assets“, says Diário de Notícias, quoting the Ministry of Finance’s internal memo.

But why will the Portuguese deficit reach 5.9% of GDP, according the government’s forecast, and why are extraordinary measures needed to reduce the deficit to the new 5.4% target? It is all connected with the transfer of the pension funds: €1.5bn from the funds will be used to pay debts concerning public hospitals which fall outside what is included in the accounts of the public administration, while the extra €480m associated with the liabilities of the pensions – whose payment is now the state’s responsibility – mean an extra spending of 0.9% and 0.3% of the GDP. Interest savings from the same pension funds will also represent a revenue relief for the government, which expects to raise €225m this year.

According to Diário de Notícias, this means that without the measures included in the 2012 state budget, the deficit would overrun from 4.5% to 5.7% of the GDP. However, the newspaper adds that the revision of the deficit targets is expected to be tolerated by the troika due to the crucial specificity that it is only taking place to ensure the payment of several state debts.

This represents an extra challenge for the government which, according to the daily, will have to change its “communication strategy“: the deficit will not be reported as the European statistics agency Eurostat calculates it – the so-called nominal deficit, or the public debt including interest liabilities and monetary fluctuations – but through the structural deficit – which erases the temporary measures and the economic conjuncture effects. This makes the consolidation efforts more visible, which, according to the Ministry of Finance’s estimates, will reduce last year’s 7.1% deficit to 2.9% this year.