Press Release No. 11/330

Press Release: IMF Completes First Review Under an EFF with Portugal and Approves €3.98 Billion Disbursement

September 12, 2011

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Portugal’s performance under an economic program supported by a 3-year, SDR 23.742 billion (about €27.27 billion) Extended Fund Facility (EFF). The completion of the review enables the immediate disbursement of an amount equivalent to SDR 3.467 billion (about €3.98 billion), bringing total disbursements under the EFF to SDR 9.078 billion (about €10.43 billion).

The EFF, which was approved on May 20, 2011 (see Press Release No. 11/190) 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, and was approved under the IMF's fast-track Emergency Financing Mechanism procedures.

Following the Executive Board's discussion, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, said:

“The new government has signaled its strong commitment to the program, and good progress has been achieved on policy implementation. While the external environment—with market pressures affecting several euro area countries and demand in export markets showing signs of slowing—has remained very difficult, the recent policy action by the European Council to strengthen the euro area crisis management framework has increased the chances of success.

“The authorities are addressing recent fiscal slippages to ensure the 2011 program targets are met. They are committed to refocusing the 2012 budget on permanent expenditure measures. Advancing structural fiscal reforms, including through strengthened commitment controls, a streamlined function of the public sector, and a reduction in fiscal risks—particularly those stemming from state-owned enterprises and private-public partnership operations—will significantly strengthen medium-term fiscal sustainability.

“Banks’ progress toward improving capital positions through market-based solutions and the recent augmentation in the amount available for capital and liquidity support are key to achieving an orderly deleveraging and restoring confidence. Continued close monitoring of deleveraging will help ensure that the adjustment safeguards adequate credit. The economy’s growth potential and competitiveness will be enhanced over time by the ongoing structural reforms in the labor and product markets (supported by a fiscal devaluation) as well as in the judicial system.”