Portugal faced fresh scrutiny from international lenders over its €78bn (£62bn) bailout yesterday amid mounting concerns that the nation could need "tens of billions" extra in funds.
Inspectors from the troika of the European Union, European Central Bank and the IMF are making their fifth visit since the nation called for an international rescue in April last year to decide whether to grant the next €4.3bn tranche of funding.
Lisbon is broadly on track with the austerity measures demanded in return for the funds, but the nation's economy is in the grip of its worst recession since the 1970s, slumping 1.2 per cent between April and June. Experts now doubt the government can meet its growth target next year and fear that Portugal's deficit could be closer to 6 per cent this year – well above Lisbon's 4.5 per cent target.
Under the terms of its deal Portugal is supposed to return to international debt markets in a year's time. But the country's benchmark 10-year borrowing costs are still worryingly high, standing at more than 9 per cent and in effect shutting it out of bond markets.
Grant Lewis, head of research at Daiwa Capital Markets Europe, said that an extension of the current deal could run into "tens of billions".
The arrival of the troika in Lisbon comes as Spain – which requested a €100bn rescue for its debt-laden banks in June – saw more bad news on its own economy. Spain's output has now fallen 1.3 per cent in the past year, worse than previous estimates of a 1 per cent fall.
Nick Spiro, the head of Spiro Sovereign Strategy, said: "The difference between Spain and Portugal is that Portugal is moving in the right direction and Spain is not. Portugal has won credibility, while Spain has lost it."