October 14, 2016 / 8:07 PM / 10 months ago

Portugal unveils 2017 budget bill, targets deficit cut to 1.6 pct

LISBON, Oct 14 (Reuters) - Portugal's minority government unveiled a 2017 draft budget on Friday targeting an ambitious deficit reduction to 1.6 percent of GDP from this year's estimated 2.4 percent, yet vowing some tax cuts and pension hikes to secure its approval in parliament.

Presenting the budget bill at a news conference, Finance Minister Mario Centeno said it involves rigorous control of state spending and will further consolidate public finances.

The centre-left Socialist government, which is backed in parliament by two far left parties, expects the economy to grow at a slightly higher pace of 1.5 percent next year following a slowdown to 1.2 percent in 2016.

Portugal's anemic growth has triggered investor worries that the heavily indebted country could lose its last investment-grade rating and, without which the European Central Bank would stop buying its bonds, possibly triggering a new debt crisis.

But the government has said the budget should convince rating agencies to at least maintain their stance on Portugal and possibly upgrade their marks next year. Canada's DBRS, the last of the major raters that keeps Portugal at investment grade, is due to review its stance on Oct. 21.

The Communists and the Left Bloc, who jointly with the Socialists hold the majority of parliament seats, have signalled they would support the general outlines of the budget proposal, but seek "improvements" before the final vote. (Reporting By Sergio Goncalves, writing by Andrei Khalip, editing by Axel Bugge)

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