Press Release: IMF Completes Eighth and Ninth Reviews Under an EFF Arrangement with Portugal, Approves €1.91 Billion Disbursement

November 8, 2013

Press Release No.13/436
November 8, 2013

The Executive Board of the International Monetary Fund (IMF) today completed the eighth and ninth reviews of Portugal’s performance under an economic program supported by a 3-year, SDR 23.742 billion (about €27.03 billion) Extended Fund Facility (EFF) arrangement. The completion of the review enables the immediate disbursement of an amount equivalent to SDR 1.679 billion (about € 1.91 billion), bringing total disbursements under the EFF arrangement to SDR 21.379 billion (about €24.34 billion).

The Executive Board also approved a request for waivers of applicability for the end-September 2013 performance criteria (PC). This waiver was necessary because the Executive Board meeting was scheduled to take place after end-September 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:

“Portugal’s short-term outlook has improved and unemployment has started to decline. Considerable progress has been made in advancing fiscal and external adjustment and structural reforms. Decisive steps were taken to keep the program on track following recent setbacks and legal challenges. Nonetheless, there remain implementation risks and uncertainty surrounding macroeconomic prospects and market financing. Continued strong commitment to the program and political cohesion are therefore critical to strengthen the recovery and regain full market access.

“In light of still fragile debt prospects, tighter financing conditions, and a sizable adjustment ahead, it will be important to sustain the fiscal consolidation effort. Full implementation of the 2014 budget and the underpinning expenditure reforms is particularly critical. The government is committed to taking alternative measures should key planned reforms be ruled unconstitutional. At the same time, further efforts are needed to address underlying weaknesses in public finances, including a large public sector with relatively high wages and pensions. The planned fiscal reforms aim to control expenditure and domestic arrears, restructure state-owned enterprises, and strengthen tax compliance.

“The authorities have a strong record in preserving financial stability, and banks’ liquidity and capital conditions remain adequate. Given the challenging economic environment, ongoing initiatives to improve supervision and monitor risks are welcome, including a further strengthening of banks’ quarterly stress tests. Channeling credit to viable firms is key to support the recovery and employment. In this context, there is a need to step up restructuring efforts to address the corporate debt overhang.

“Forceful implementation of the ambitious reform agenda is critical to boost competitiveness, jobs, and long-term growth. This includes further advances to address the remaining nominal rigidities and supply-side bottlenecks.

“In addition to strong program implementation, Portugal’s success continues to depend on external support and effective crisis management policies at the euro area level, including support by the Eurosystem to help address financial segmentation and restore an appropriate monetary policy transmission.”

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