## IMF LENDING CASE STUDY: PORTUGAL

## Source details

**Canonical URL:** [IMF LENDING CASE STUDY: PORTUGAL](https://www.imf.org/en/countries/prt/portugal-lending-case-study)

## Other formats

- [Markdown version](/en/countries/prt/portugal-lending-case-study/index.md)
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### Background and crisis triggers
- Portugal adopted the euro in 1999, which increased integration with the European Union and allowed borrowing at record-low interest rates.
- Uncontrolled public and private spending led to surging indebtedness and lack of necessary structural reforms.
- By 2011, Portugal entered a full-blown economic crisis:
  - Overall fiscal deficit in 2010 ballooned to about 11 percent of GDP.
  - Unemployment climbed to 16 percent in 2013.
  - Yields on Portuguese sovereign bonds moved into double-digit territory.
- In spring 2011, Portugal reached out to the IMF and the European Union.

### Program design and conditionality
- The agreement with international partners provided financial assistance worth €78 billion ($116 billion; £70 billion), of which one-third was committed by the IMF.
- Portugal committed to:
  - Progressively cutting its deficit.
  - Facilitating bank capitalizations.
  - Implementing structural reforms, including labor reforms.
  - Lowering the public sector wage bill.
  - Reducing the most generous state pensions.
  - Privatizing stakes in national energy companies and selling the national airline.
- The 2011–14 program prioritized social cohesion by consulting unions, business groups, the opposition party in Parliament, and social partners to build consensus and explain the need for measures.

### Implementation and political economy
- Broad consultation and consensus-building were central to program implementation.
- Program implementation continued without interruption even after a change of government, reflecting the political consensus achieved.

### Outcomes and key statistics
- Fiscal and market outcomes reported by the IMF:
  - From a fiscal deficit of about 11 percent of GDP, the government targeted a small deficit in the year of reporting.
  - The primary surplus was expected to hit its highest level since 1992.
  - Yield on a 10-year bond was about 1.1 percent.
  - Joblessness stood below 7 percent — its lowest level since 2004.
- Economic recovery features:
  - Improved business environment, aided by labor reforms.
  - Recovery driven by a boom in tourism and exports.
  - A revitalized risk profile in international markets attributed in large part to responsible fiscal policies of the preceding years.
- The IMF characterized Portugal as having a solid base to continue strengthening potential and reversing past excesses.

### Lessons and policy implications
- Political consensus and social cohesion are critical to sustain implementation of fiscal consolidation and structural reforms.
- Combining fiscal adjustment with structural reforms and measures to stabilize the banking sector can restore market confidence and reduce sovereign yields.
- Transparent consultation with social partners can enable continuity of program implementation across political transitions.

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## References

- [Effectiveness of IMF Lending Programs: Country Case Studies](https://www.imf.org/en/about/effectiveness-of-imf-lending)
- [Portugal and the IMF](https://www.imf.org/en/countries/prt)

_Source: https://www.imf.org/en/countries/prt/portugal-lending-case-study_