The International Monetary Fund said Tuesday that Portugal was meeting the targets of the European Union-IMF bailout plan, but faced real risks from global market turmoil.
It also called on Lisbon to work harder to control spending and cut wasteful outlays to make sure its austerity program is successful in slashing deficits.
Portugal faces another year of economic contraction and two more years of high unemployment, the IMF said in its first review of the four-month-old, 78 billion euro ($107 billion) program.
But the government has made solid achievements in stabilizing banks, starting to restructure fiscal management including tax collection, and reforming the state enterprise sector, the IMF reported.
“All the quantitative performance criteria for the first review were met,” Arrigo Sadun, IMF executive director for Portugal, said in a statement.
“The Portuguese authorities are strongly committed to the program leading to a general government deficit of 3 percent of GDP in 2013 (per requirements) and leading to the reduction in the public debt ratio.”
On Monday the Fund released a new 3.98 billion euro ($5.4 billion) tranche to Lisbon from its 27.27 billion euro share of the rescue package.
It said that so far the country does not need an expanded bailout program like embattled Greece, but that pressures remained on the program.
“The global market turmoil has heightened risk aversion, and funding problems could intensify, especially for banks,” the IMF said in its report.
Poul Thomsen, IMF mission chief for Portugal, told reporters Tuesday that the program has “considerable buffers” and remains “actually robust, quite robust in the short run.”
“But it is a fact that we have seen these broader concerns about the (eurozone) periphery spilling over into downgrades and questioning about Portugal,” he said.
“There is no doubt that the continued uncertainty about the periphery is also affecting Portugal unfavorably.”
He said the government, which has seen its borrowing avenue in the commercial market all but cut off by extremely high interest rates, is taking a smart path with “front-loaded” implementation of reforms.
In that way “Portugal can distinguish itself from other countries with a problem,” he said.