Press Release No. 14/173

Press Release: IMF Completes Eleventh Review Under an EFF Arrangement with Portugal, Approves €851 Million Disbursement

April 17, 2014

The Executive Board of the International Monetary Fund (IMF) today completed the eleventh review of Portugal’s performance under an economic adjustment program supported by a 3-year, SDR 23.742 billion (about €26.58 billion) Extended Fund Facility (EFF) arrangement. The completion of the review enables the immediate disbursement of an amount equivalent to SDR 760 million (about €851 million), bringing total disbursements under the EFF arrangement to SDR 22.942 billion (about €25.68 billion).

The prior action for completion of this review was met. The Executive Board also approved a request for waivers of applicability for the end-March 2014 performance criteria (PCs). The waivers were necessary because the Executive Board meeting took place after end-March 2014 but prior to the availability of data to assess the relevant PCs.

The Executive Board also approved a request for extension of the arrangement to June 30, 2014. This extension is needed to provide sufficient time to assess the end-March performance criteria, complete the final review, and enable the final purchase under the arrangement in accordance with Fund policies.

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, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said:

“The short-term macroeconomic outlook has continued to improve and the program is on track, underpinned by a sizable budgetary over-performance in 2013. The authorities remain committed to fiscal discipline and have fully specified the measures necessary to achieve the 2015 fiscal target. Efforts are ongoing to complete unfinished reforms under the program and further strengthen banks’ balance sheets. Portugal, however, still needs to address important challenges, as large financing needs leave the country susceptible to market volatility, and remaining bottlenecks to growth and competitiveness risk delaying the necessary rebalancing of the economy.

“Fiscal consolidation efforts must be sustained to set debt on a downward trajectory. In view of budgetary risks ahead, the authorities’ solid track record in implementing compensatory measures offers important reassurances. Nevertheless, close monitoring of budget implementation and further progress in the reform of pensions and public administration as well as in fiscal structural areas remain necessary.

“Steady commitment to advance the structural agenda is critical to raise Portugal’s growth potential. In many areas, reforms have yet to translate into effective change, calling for a medium-term strategy to tackle remaining rigidities in product and labor markets, while improving the business climate. New measures to promote orderly corporate deleveraging are also important to underpin a sustainable investment-led recovery.

“Continued vigilance in the financial sector is also needed. Recent initiatives by Banco de Portugal are welcome steps in this direction, including ongoing efforts to strengthen banks’ stress tests. Eurosystem’s liquidity continues to play a pivotal role in easing remaining funding constraints.

“In addition to strong program implementation, crisis management policies at the euro area level, including the commitment by the European leaders to support Portugal until full market access is restored, are essential to help the country remain resilient to shocks.”