Press Release No. 12/120

Press Release: IMF Completes Third Review Under an EFF Arrangement with Portugal, Approves €5.17 Billion Disbursement

April 4, 2012

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Portugal’s performance under an economic program supported by a 3-year, SDR 23.742 billion (about €27.63 billion) Extended Fund Facility (EFF) arrangement. The completion of the review enables the immediate disbursement of an amount equivalent to SDR 4.443 billion (about about €5.17 billion), bringing total disbursements under the EFF arrangement to SDR 15.946 billion (about €18.56 billion).

The Executive Board also approved a request for waivers of applicability for two end-March 2012 performance criteria. These waivers were necessary because the Executive Board meeting was scheduled to take place after end-March but before the data for consolidated government cash balance and for the stock of government debt become available.

The EFF arrangement, 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.

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

“Good progress has been made on implementing policies under the program and early signs indicate that the required economic adjustment is taking place. Given the difficult external and internal environment, strong program implementation remains essential to ensure program success, rebuild market confidence, and restore growth.

“The fiscal consolidation strategy remains appropriate, with the deficit target for 2012 achievable under current policies and outlook. In the event that downside risks to growth materialize, a case could be made to allow automatic stabilizers to operate, but changes to fiscal targets to accommodate policy-induced slippages should be avoided at all costs.

“Recent progress on advancing fiscal structural reforms—including developing new commitment control procedures, addressing arrears, restructuring public enterprises, and the establishment of the economic program with the Madeira region—should help support the ongoing consolidation efforts. It will be important to continue monitoring the effectiveness of these reforms to limit fiscal risks and ensure deficit targets are met. The establishment of the new Fiscal Council will also help promote fiscal responsibility.

“The easing of bank liquidity conditions and prospective public recapitalization of some banks should help facilitate an orderly deleveraging process, but it will be important to ensure adequate provision of credit to viable enterprises. As the authorities consider initiatives in this regard, care must be taken so that private liabilities do not migrate to the public sector’s balance sheet.

“Progress is being made on advancing the structural reform agenda in key areas such as the judicial system, and labor and housing markets. Reducing rents in the electricity sector and further improving the competition framework will also be important. With the decision to abandon the fiscal devaluation, the authorities should continue to seek ways to enhance the reform agenda, including through deeper labor and product market reforms, to strengthen competitiveness and improve growth prospects.”