Press Release No. 14/461

Press Release: IMF Publishes Fiscal Transparency Evaluation for Portugal

October 6, 2014

The International Monetary Fund has published today a Fiscal Transparency Evaluation for Portugal, which was carried out at the request of the Portuguese government by a joint team from the Fund’s Fiscal Affairs and Statistics Departments that visited Lisbon in May 2014.

The report recognizes that Portugal has made remarkable progress since the beginning of the financial crisis and now meets most of the principles and practices set by the revised Fiscal Transparency Code at good or advanced levels. The evaluation also highlights scope for further improvement in Portugal’s fiscal transparency practices in a number of areas, largely because recently launched reforms have not yet been fully implemented. The report’s key findings are the following:

• Fiscal reporting meets good or advanced practices, particularly in compliance with European Union requirements and ESA 95 standard (the harmonized European methodology for the compilation of national accounts). But still lacks a sound conceptual accounting framework based on internationally accepted standards.
• Fiscal forecasting and budgeting have improved over the last three years, with only investment evaluation still remaining at a basic level of practices.
• Fiscal risk management is in its infancy and in spite of initiatives undertaken in the last few years, such as the publication of a fiscal risk statement, remains fragmented.

The overall positive result of the evaluation marks a significant improvement over the situation observed at the start of the adjustment program in mid-2011. The key achievements can be summarized as follows:

• The quality, transparency, and comprehensiveness of information on fiscal developments have improved. New fiscal reports and documents, including on tax expenditures, government guarantees, and public-private partnerships (PPPs) have been developed and published.
• A new legal and institutional framework for PPP was established in 2012, which includes the creation of a central monitoring unit as well as a series of measures aimed at increasing the control over potential fiscal risks.
• Progressive refinements of the Budget Framework Law have been enacted, including the transposition of the EU Fiscal Compact provisions.
• The new legislation on the financial management of local governments (municipalities and regions) that was approved in September 2013 strengthens monitoring and reporting requirements as well as coordination across levels of government.

Despite the progress, the report points to Portugal’s still fragile public finances, especially in terms of its still sizable negative net worth position (including employment-related pension liabilities) and overall exposure to contingent liabilities.

The report therefore identifies completing the ongoing reform agenda as the key priority to strengthen the management of public finances and further improve transparency practices. This would require:

• bringing to fruition the ongoing efforts to develop and implement an accounting framework based on generally accepted accounting standards, and eventually publishing accrual-based consolidated financial statements;
• expanding the focus of fiscal reports from the general government to the public sector;
• revising the Budget Framework Law to reflect recent reforms and provide the basis for sound and prudent fiscal management; and,
• better coordination, and preferably centralized risk management within a coherent framework under the responsibility of the Minister of Finance.

Further information about the new Fiscal Transparency Code and Evaluation can be found at http://imf.org/fiscaltransparency

The Portugal Fiscal Transparency Evaluation report can be found here http://www.imf.org/external/pubs/cat/longres.aspx?sk=42386.0.