End of the adjustment programme, 4th may 2014
2014-05-04 at 20:38


The Portuguese government has decided, after a special cabinet meeting today, to conclude and exit the three-year EU-IMF adjustment programme without requesting any further external financial assistance. The programme ends on 17 May.

The decision follows a careful assessment of the current economic situation and future prospects, the situation in the financial markets, notably the successful issuance of long-term debt, and the existence of a cash buffer that covers the government's funding needs for the next 12 months. The government also took into consideration the views expressed by relevant stakeholders and market participants on the options around the exit strategy. Finally, the decision follows last Friday's successful completion by the European Commission, the European Central Bank and the International Monetary Fund, of the 12th and final review mission of the Economic Adjustment Programme. The disbursement is expected to occur in June corresponding to the formal conclusion.

During the last three years the budget deficit was more than halved and the external current account has moved from a substantial deficit into a surplus. The economy is expected to grow by 1.2% this year, 1.5% in 2015, 1.7% in 2016 and 1.8% in 2017-2018 on the back of robust export growth and the gradual recovery of private consumption and investment. Growth forecasts are prudent and do not factor in the full impact of the extensive structural reforms implemented during the adjustment programme period and projected for coming years, which contribute to a stronger economy and job creation. Albeit still at very high levels, the unemployment rate is set to fall to 15.4% this year and 14.8% in 2015, from 16.3% in 2013.

Last week the government announced detailed measures to reach the agreed objective of a budget deficit of 2.5% of GDP in 2015, down from an expected 4.0% this year. The deficit target in 2013 was reached by a comfortable margin and budget performance in the first months of this year was better than expected, as noted by the Troika at the end of the last review (See Statement by the Commission, ECB and IMF on the 12th review mission to Portugal).

The Portuguese government reaffirms its commitment to continue working towards sound public finances, in line with the commitments under the Fiscal Compact as well as the momentum on structural reforms, namely through monitoring their results, adjusting them accordingly, and identifying further reforms needed.

Prime Minister Pedro Passos Coelho said: "This is the right decision at the right moment. It's the decision that defends most effectively the interests of Portugal and best matches the expectations of the people. It was made possible because, as is recognised in the Troika's last mission statement, Portugal in on the right track, of more solid public finances, financial stability and increased competitiveness". He added: "It is the firm intention of this Government and of its parliamentary majority to stick to responsible public finances". The efforts made by the Portuguese people to pull the country back from the brink of bankruptcy, represent "the best guarantee of national consensus that will give strength to our recovery," he said.

The Prime Minister made the announcement to the Portuguese people in a televised address on Sunday night, on the eve of the information to euro area finance ministers, in Brussels.

Medium-term fiscal strategy

On April 30th, Portugal presented the Fiscal Strategy Document for the period 2014-2018 (Documento de Estratégia Orçamental 2014-2018). It outlines the country's medium-term fiscal strategy until 2018, according to the EU budgetary coordination and surveillance rules and the conditions of the Economic Adjustment Programme. It also includes detailed measures for 2015. The continuation of the fiscal consolidation effort will allow for important results:

  • The medium-term objective (MTO) of a structural deficit of 0.5% of GDP will be achieved in 2017, improving from an expected 2.1% this year and 1.3% in 2015.
  • The primary balance is expected to become positive already this year, at 0.4% of GDP, and to increase to 4.2% in 2018.
  • Budget Balance is forecast to be reached in 2018, following a continuous improvement in the headline deficit.
  • General Government gross debt is expected to peak at 130.2% of GDP this year and to decrease to 116.7% in 2018. The current public debt ratio is due to the accumulation of budget deficits in the past, to the high financing costs during the euro area crisis and to a cumulative output loss of around 6% of GDP from 2010 to 2013. For 2014, the debt ratio also reflects the accumulation of cash deposits to cover for future financing needs, which represent about 8 percentage points of GDP.

Main macroeconomic and fiscal indicators


Source: Ministry of Finance, Fiscal Strategy Document 2014-2018, April 2014


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