## Press Release: IMF Executive Board Approves an €26 Billion Extended Arrangement for Portugal

_IMF News, May 20, 2011_

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## Bibliographic details
- Published: May 20, 2011

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### Overview
- Executive Board approved a three-year SDR 23.742 billion (about €26 billion) arrangement under the Extended Fund Facility for Portugal in support of the authorities’ economic adjustment and growth program.
- The arrangement is front-loaded, making SDR 5.6 billion (about €6.1 billion) immediately available to Portugal from the IMF.
- In 2011, total IMF financing will amount to about €12.6 billion and will be partnered with about €25.2 billion committed by the European Union.
- The extended arrangement is part of a cooperative package of financing with the European Union amounting to €78 billion over three years.
- The arrangement 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.

### Financing and Access
- SDR 23.742 billion (about €26 billion): total size of the three-year Extended Fund Facility arrangement.
- SDR 5.6 billion (about €6.1 billion): immediately available disbursement (front-loaded).
- 2011 IMF financing: about €12.6 billion.
- European Union commitment in 2011: about €25.2 billion.
- Cooperative EU–IMF financing package: €78 billion over three years.
- Exceptional access level: 2,306 percent of Portugal’s IMF quota.
- Approved under: IMF's fast-track Emergency Financing Mechanism procedures.

### Program Objectives and Rationale
- Main aim: support the authorities’ economic adjustment and growth program and provide breathing space from borrowing in the markets while policy implementation proceeds.
- Policy mix emphasized by Acting Managing Director John Lipsky:
  - restoring competitiveness through structural reforms;
  - ensuring a balanced fiscal consolidation path;
  - stabilizing the financial sector.
- Cross-party political support for principal objectives and key policies noted as important for program credibility.

### Growth-Enhancing Reforms
- Program centers growth and job creation by addressing low growth via:
  - a far-reaching structural reform agenda to increase competition;
  - measures to reduce labor costs;
  - policies to boost employment and productivity.
- Strong implementation of these reforms is described as key to set the economy on a recovery path and improve market sentiment.

### Fiscal Policy and Consolidation
- Fiscal consolidation described as ambitious but credible.
- Targeted fiscal path toward meeting the Excessive Deficit Procedure goal of 3 percent of GDP by 2013.
- Fiscal consolidation balances limiting impact on economic activity and restoring debt sustainability while protecting the most vulnerable.
- Fiscal reforms to streamline public sector functioning and reduce fiscal risks will support the plan.

### Financial Sector Measures and Safeguards
- Financial sector component aims to promote market-based solutions to boost banks’ capital and restore confidence and access to wholesale market funding.
- Bank of Portugal request: raise Core Tier 1 capital level to 9 percent by end-2011 and 10 percent by end-2012.
- Program provides safeguards for capital and liquidity support and includes a fully funded capital backstop facility, as needed.
- Measures to support adequate banking system liquidity and to strengthen supervisory and regulatory framework are embedded to help ensure orderly deleveraging and preserve financial stability.

### Recent Economic Developments (Annex)
- Long-standing structural problems undermining growth: low productivity, weak competitiveness, and high debt.
- Fiscal deterioration and delays in corrective action:
  - overall fiscal deficit declined to 9.1 percent of GDP in 2010 from 10.1 percent in 2009.
  - ambitious budget target of 4.6 percent of GDP for 2011 fell out of reach.
- Contagion and fiscal risks increased funding pressures for sovereign and banks; government funding costs rose to post-euro record highs.
- Distress in sovereign debt market spilled over into the bank wholesale market, tightening banks’ liquidity and causing loss of wholesale funding access.
- Banks tightened lending policies and credit growth slowed considerably.
- These developments culminated in a request for external financial assistance.

### Program Summary — Main Elements
- Growth-enhancing reforms:
  - bold structural reform agenda focused on increasing competition, reducing labor costs, and boosting employment and productivity.
- Restoring confidence and fiscal sustainability:
  - ambitious and credible fiscal consolidation plan supported by structural fiscal reforms to streamline public sector functioning and reduce fiscal risks.
- Safeguarding financial stability:
  - increase in banks’ capital positions through market-based solutions, supported as needed by a fully funded capital backstop facility;
  - safeguards for banking system liquidity and strengthened supervisory and regulatory framework to enable orderly deleveraging.
- Large external financing assistance intended to aid transition and re-establish policy credibility.
- Major political parties have publicly supported the main elements of the program.

*Press Release No. 11/190, May 20, 2011, International Monetary Fund*

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## References

- [Portugal and the IMF](http://www.imf.org/external/country/PRT/index.htm)
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- [Portugal: Fast Facts](https://www.imf.org/external/np/exr/countryfacts/prt/index.htm)
- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr11190_