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Portugal must step up reforms after elections: IMF

Published on 06/08/2015

While it averted contagion from the most recent Greek debt crisis, Portugal's next government must step up the pace of reform following October elections, the International Monetary Fund said Thursday.

In its second assessment following Portugal’s August 2014 exit from the 78 billion euro ($85 billion) international bailout accorded three years before, the IMF applauded steps Lisbon has taken to remedy its excessive debt load, but said further reforms to stimulate the economy were necessary.

“Recent market volatility related to Greece has had limited impact on Portugal, reflecting the country’s improving fundamentals in addition to the overall supportive external environment,” the IMF said in a statement, urging further reforms be undertaken by the government that is formed after Portugal’s legislative elections on October 4.

“It will be essential to regain momentum on structural reforms when a newly elected government is formed. The current economic recovery and beginning of a new political cycle presents a favourable opportunity to press ahead with reforms, particularly in the areas of labour market and public sector reform,” it said.

Portugal is seeing some fruit from reforms undertaken by the centre-right government that also generated considerable public pain.

Portugal’s 0.9 percent GDP expansion in 2014 was the first since 2009, and the economy is set to expand this year by 1.6 percent according to matching forecasts by the IMF and European Union.

Though joblessness remains high at 11.9 percent, according to figures published by the national statistics agency, that unemployment rate was the lowest since 2010.

Markets have also smiled on Portugal’s efforts to put its finances in order, with debt markets continuing to offer Lisbon beneficial terms during bond sales even as the Greek crisis roiled.

One result is that Portugal now plans to reimburse 29.6 billion euros of IMF loans ahead of schedule — with 8.4 billion euros of that sum already paid back.

But in its assessment, the IMF urged Portugal to push its succesful reform remedy even farther.

“Maintaining policy credibility will be essential to ensure favourable financing conditions. With increased financial market volatility in the context of developments in Greece, it is crucial to ensure that investors retain confidence in the direction of economic policies,” it said.