Press Release: IMF Completes Second Review Under an EFF with Portugal, Approves €2.9 Billion Disbursement

December 19, 2011

Press Release No.11/474
December 19, 2011

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Portugal’s performance under an economic program supported by a 3-year, SDR 23.742 billion (about €28.0 billion) Extended Fund Facility (EFF). The completion of the review enables the immediate disbursement of an amount equivalent to SDR 2.425 billion (about €2.9 billion), bringing total disbursements under the EFF to SDR 11.503 billion (about €13.6 billion).

The EFF, 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, and was approved under the IMF's fast-track Emergency Financing Mechanism procedures

Following the Executive Board's discussion, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said:

“Good progress has been achieved so far on policy implementation, but given the strong headwinds from the deteriorating external environment, perseverance and determination to implement the ambitious fiscal program and push through tough, but essential, structural reforms will be critical, along with continued European support.

“The strong 2012 budget and its focus on expenditure cuts are welcome. While the fiscal slippages in 2011 have prompted the use of banks’ pension fund assets to cover the gap, the bold and concrete measures included in the budget should help achieve the ambitious 2012 fiscal targets.

“The authorities’ fiscal plans are firmly rooted in an integrated framework, which explicitly recognizes and addresses the contribution of state-owned enterprises, public-private partnerships, and regional and local governments to current fiscal pressures. Control over spending commitments—which is being strengthened in the context of ongoing fiscal structural reforms—will be important for meeting the targets.

“The environment facing banks is challenging, not least due to the need for raising new capital to comply with the new safeguards required by EBA. Despite banks’ strong efforts to increase capital from private sources, state support for bank recapitalization may be needed. It will be important to ensure that the forthcoming rules governing such support allow banks to remain managed on a commercial basis. In light of the fiscal contraction and much weaker external demand, it is even more critical to ensure that bank deleveraging does not come at the cost of excessive contraction in credit to dynamic enterprises.

“Structural reforms are progressing, and the strong efforts made in areas such as labor markets and competition framework should continue, as these reforms will, over time, place downward pressure on relative prices. The decision to not implement a fiscal devaluation creates a considerable gap in the structural reform agenda that needs to be filled with alternative measures to strengthen competitiveness. In this regard, the authorities’ commitment, in consultation with stakeholders, to enhance the depth and focus of the reform agenda at the time of the next review is a welcome step.”


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