Press Release No. 14/55

Press Release: IMF Completes Tenth Review Under an EFF Arrangement with Portugal, Approves €0.91 Billion Disbursement

February 12, 2014

The Executive Board of the International Monetary Fund (IMF) today completed the tenth review of Portugal’s performance under an economic program supported by a 3-year, SDR 23.742 billion (about €26.87 billion) Extended Fund Facility (EFF) arrangement. The completion of the review enables the immediate disbursement of an amount equivalent to SDR 0.803 billion (about € 0.91 billion), bringing total disbursements under the EFF arrangement to SDR 22.182 billion (about €25.1 billion).

All the prior actions for completion of this review were met. The Executive Board also approved a request for waivers of applicability for the end-December 2013 performance criteria (PC). This waiver was necessary because the Executive Board meeting was scheduled to take place after end-December 2013 but prior to the availability of data to assess the relevant PCs.

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.

After the Board discussion, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, said:

“The Portuguese authorities’ implementation of their Fund-supported program has been commendable, despite recent legal setbacks. The authorities have promulgated a 2014 budget consistent with program objectives, and have introduced measures to offset the component of the pension reform invalidated by the constitutional court. At the same time, while the short-term outlook has improved, unemployment, while declining, remains high and risks remain. The authorities’ continued strong commitment to program implementation is crucial to strengthen the recovery and make further progress in achieving fiscal and external sustainability.

“It will be important to complete fiscal consolidation to put the public debt firmly on a downward path. Pressures to increase public expenditure should be resisted, and efforts to rationalize public administration and narrow the gap between social transfers and contributions should be continued. Further fiscal structural reforms, including in revenue administration and arrears control, are critical to maintain sustainable public finances and minimize budgetary risks.

“Preserving financial stability while promoting access to credit is necessary to facilitate a durable recovery. Given high levels of corporate debt that constrain bank credit, stepped-up efforts to facilitate an orderly deleveraging process and measures to promote access to funding for viable firms are needed.

“Structural reforms are key to raising the Portuguese economy’s growth potential. Greater product market competition and labor market flexibility are still needed. In addition, higher investment, especially in the tradable sector, is needed to generate greater employment and the sustained external surpluses necessary to unwind imbalances.

“The commitment by the European leaders to support Portugal until full market access is regained, combined with continued strong program implementation, is essential to help the country remain resilient to shocks and consolidate progress.”