Endividamento - Antonio Gaspar

IMF Completes Seventh Review Under an EFF Arrangement with Portugal, Approves €657.47 Million Disbursement

June 12, 2013

The Executive Board of the International Monetary Fund (IMF), completed the seventh review of Portugal’s performance under an economic program supported by a 3-year, SDR 23.742 billion (about €27.19 billion) Extended Fund Facility (EFF) arrangement. The completion of the review enables the immediate disbursement of an amount equivalent to SDR 574 million (about €657.47 million), bringing total disbursements under the EFF arrangement to SDR 19.700 billion (about €22.56 billion).

The Executive Board also approved the authorities’ request for modification of the end-June 2013 performance criteria.

The EFF arrangement, which was approved on May 20, 2011, is part of a cooperative package of financing with the European Union amounting to €78 billion over three years. It entails exceptional access to IMF resources, amounting to 2,306 percent of Portugal’s IMF quota.

 Considerable progress has already been made on fiscal and external adjustment and the structural reform agenda, despite strong headwinds. Market conditions have improved significantly and Portugal has been able to return to capital markets at long maturities. Nonetheless, given the still sizable risks to the outlook, the authorities need to sustain the reform effort to improve competitiveness, boost long-term growth, and further advance fiscal consolidation.

The fiscal targets have been recalibrated to preserve the right balance between consolidation and support for economic growth and employment. However, scope for deviating further from the revised deficit path is limited in view of the elevated medium-term financing needs and debt ratios. Early implementation of the measures identified in the public expenditure review and continued strong implementation of the fiscal structural reform agenda remain imperative to bring public finances back to a sustainable path. The planned corporate income tax reform can also help foster investment and competitiveness, while rebalancing the adjustment mix.

The authorities have a strong track record in preserving financial stability. Progress has been made in strengthening banks’ liquidity and capital buffers, despite a difficult operating environment. Channeling credit to viable firms to support employment and facilitate economic recovery remains an important goal. The Eurosystem has a pivotal role to play in containing credit segmentation and restoring monetary policy transmission.

Further advances with the structural reform agenda are critical to address remaining nominal rigidities in the economy and boost competitiveness and growth. These include further actions to remove bottlenecks to growth, reduce production costs, and minimize rents in network industries.

In addition to strong program implementation, Portugal’s success continues to depend on external support and effective crisis management policies at the euro area level. The envisaged lengthening of the maturities of the EFSF and EFSM loans to support the authorities’ market re-access strategy is a welcome development in this regard.