Press Release No. 13/14

Press Release: IMF Completes Sixth Review Under an EFF Arrangement with Portugal, Approves €838.8 Million Disbursement

January 16, 2013

The Executive Board of the International Monetary Fund (IMF) today completed the sixth review of Portugal’s performance under an economic program supported by a 3-year, SDR 23.742 billion (about €27.51 billion) Extended Fund Facility (EFF) arrangement. The completion of the review enables the immediate disbursement of an amount equivalent to SDR 724 million (about € 838.8 million), bringing total disbursements under the EFF arrangement to SDR 19.126 billion (about €22.16 billion).

The Executive Board also approved a request for waivers of applicability for the end-December 2012 performance criteria (PC). This waiver was necessary because the Executive Board meeting was scheduled to take place after end-December but prior to the availability of data to assess the relevant PCs

The Executive Board today also concluded the 2012 Article Consultation with Portugal. A Public Information Notice will be issued in due course.

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 authorities’ policy and reform effort has been impressive. Considerable progress has already been made in fiscal and external adjustment, and sovereign spreads have narrowed significantly, which bodes well for the authorities’ strategy of regaining market access. Nonetheless, the near-term outlook is uncertain, and sizable medium-term economic challenges remain. In light of this, the authorities need to sustain efforts to make the tradable sector more competitive, boost long-term growth, and further advance fiscal consolidation.

“The fiscal objectives remain appropriate, provided economic developments unfold as expected. However, a public debate on how to best share the burden of the remaining sizable fiscal adjustment is needed. Given an already high tax burden, the expenditure review that is aimed at rebalancing the adjustment mix is welcome. Going forward, a broader tax base and strengthened compliance would help generate space for lower income tax rates, particularly for corporate income tax, with a view to fostering investment and competitiveness. Significant progress has been made on the fiscal structural agenda, but continued strong implementation will be needed to achieve durable fiscal consolidation.

“The authorities have a strong track record in preserving financial stability, but need to continue to monitor risks vigilantly. Progress has been made in keeping the banks well capitalized and adequately financed. Improved credit conditions will be important to facilitate economic recovery and ensure an orderly deleveraging by highly indebted firms.

“The progress on labor and product market reforms, as well as in the judiciary, is encouraging. However, the authorities should vigorously pursue structural reforms to lock in a durable improvement in competitiveness, growth, and employment.

“In addition to domestic efforts, success will depend critically on continued external support and successful crisis policies at the euro area level. Support from the Eurosystem is important to contain credit market segmentation and improve monetary policy transmission.”