## Portugal: Completing the Job

_IMF Blog, February 19, 2014_

## Source details

**Canonical URL:** [Portugal: Completing the Job](https://www.imf.org/en/blogs/articles/2014/02/19/portugal-completing-the-job)

## Other formats

- [Markdown version](/en/blogs/articles/2014/02/19/portugal-completing-the-job/index.md)
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## Bibliographic details
- Authors: Subir Lall
- Published: February 19, 2014

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### Assessment and progress
- IMF released a report on Portugal’s progress under the country’s Economic Adjustment Program.
- "There is no doubt that Portugal has made remarkable progress over the past three years."
- Official financing from Portugal’s European partners and the IMF provided a window of opportunity to address root weaknesses and regain market confidence.
- Authorities made substantial progress in fiscal adjustment and frontloaded it to establish fiscal policy credibility.
- "All told, about two-thirds of the structural fiscal effort necessary to comply with the European Fiscal Compact’s medium-term objectives has now been completed."
- Wide-ranging structural reforms enacted to improve functioning of labor and product markets and the business environment.
- External adjustment has exceeded expectations, reducing need for overseas borrowing.
- Financial stability has been preserved; "sovereign yields recently dipped to their lowest level since April-2010."

### Remaining risks and debt challenges
- "Risks persist; unemployment remains high" — unemployment remains elevated, especially for youth and long-term job seekers.
- Public debt and private sector debt levels:
  - public debt "close to 129 percent of GDP"
  - non-financial private sector debt "255 percent of GDP"
- Negative investment position vis-à-vis the rest of the world:
  - "currently above 110 percent of GDP" and "tilted toward debt"
- Policy implications from debt position:
  - Further fiscal consolidation and private sector deleveraging will be necessary.
  - External borrowing "is not an option for the foreseeable future."
  - The economy needs to generate external surpluses; investment must be geared toward tradable sectors; "growth and employment have to be driven by exports."

### Competitiveness and labor costs
- Without exchange rate flexibility, improving competitiveness requires lowering unit labor and other input costs, raising productivity, and enhancing firms' ability to adjust to shocks.
- Progress noted in lowering unit labor costs in the private sector, aided by reforms softening employment protection and encouraging more flexible work arrangements.
- Reforms to collective bargaining helped better align wages and productivity.
- Relative significance of labor costs:
  - "labor costs make up only about 30 percent of operational costs."
- Need to balance adjustment so burden does not fall excessively on labor; reduce other production costs.
- Priority product market reforms:
  - increase competition and reduce rents in the nontradable sector
  - identify remaining impediments to price flexibility and steps to boost productivity
  - ensure new laws and regulations translate into effective change and lower input prices for exporters

### Policy recommendations and next steps
- Persist with ambitious reforms to:
  - "bring ongoing fiscal adjustment to term"
  - "facilitate private sector deleveraging"
  - "boost competitiveness"
- Avoid returning to the pre-crisis economic model of borrowing for consumption or unproductive investment.
- Sustain efforts to raise competitiveness as the only viable path forward.
- Recognize achievements to date and continue reforms "over coming years" irrespective of political leadership; build "as broad a consensus as possible."

*IMF blog post by Subir Lall, February 19, 2014*

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## Content in this bundle

- **Portugal: Concluindo o trabalho; 18 de fevereiro de 2014**
  - [Portugal: Concluindo o trabalho; 18 de fevereiro de 2014 (Markdown version)](/external/lang/portuguese/np/blog/2014/021914p.pdf.md){rel="alternate" type="text/markdown"}
  - [Portugal: Concluindo o trabalho; 18 de fevereiro de 2014 (PDF)](/external/lang/portuguese/np/blog/2014/021914p.pdf){rel="external" type="application/pdf"}
- **Country Report**
  - [Country Report (Markdown version)](/external/pubs/ft/scr/2014/cr1456.pdf.md){rel="alternate" type="text/markdown"}
  - [Country Report (PDF)](/external/pubs/ft/scr/2014/cr1456.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/blogs/articles/2014/02/19/portugal-completing-the-job_