Portugal still faces some tough challenges but is on track to meet this year's budget deficit goal despite a shortfall in performance so far, officials from the European Union and IMF said today.

The officials, who are carrying out the first review of Portugal's economy under a €78-billion international bailout, said that they would recommend the disbursement of the second tranche of the rescue funds.

"There is no doubt that while we are out to a strong start the most difficult challenges are still ahead," said Poul Thomsen, the IMF mission chief to Portugal.

He warned that if there was any serious weakening of the economic environment in core European states there would be a "significant negative impact."

Europe's debt crisis has turned on Spain and Italy in recent weeks, heightening risks for the euro zone. But the officials said it was premature to talk about fresh rescue funds for Portugal, like Greece is set to receive.

Finance minister Vitor Gaspar earlier today said the government would bring forward hikes in value-added tax on gas and electricity to this year from 2012.

The government said early in the summer that there had been a shortfall in the budget so far this year, which Gaspar said today amounted to 1.1 per cent of gross domestic product.

Still, the officials said they were confident that Portugal would meet this year's budget deficit goal of 5.9 per cent of GDP.

Portugal became the third country in the euro zone to seek a bailout, after Greece and Ireland, after its borrowing costs shot higher after the previous government failed to pass austerity measures.

The new centre-right coalition government has a large majority in parliament, allowing it to pass austerity measures.

Reuters