## IMF Survey: IMF Outlines Joint Support Plan with EU for Portugal

_IMF News, May 6, 2011_

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**Canonical URL:** [IMF Survey: IMF Outlines Joint Support Plan with EU for Portugal](https://www.imf.org/en/news/articles/2015/09/28/04/53/soint050611a)

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## Bibliographic details
- Published: May 6, 2011

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### Joint financing package and objectives
- Joint financing package worth €78 billion (about $116 billion).
- EU pledge: €52 billion.
- IMF contribution: €26 billion, to be provided over three years under the Extended Fund Facility.
- Main goals: restore competitiveness, reignite growth, and create employment.
- Purpose: provide breathing space to establish a strong record of policy implementation before returning to the markets.

### Macroeconomic context and outlook
- Portugal averaged 1 percent growth during the past ten years—the slowest in the euro area.
- Problems: large fiscal deficit, high levels of debt, and persistent unemployment.
- Recovery expectation: "We think a recovery will get under way in the first half of 2013, provided the reforms are implemented as planned."

### Fiscal strategy and targets
- Fiscal adjustment size: measures amounting to about 10 percent of GDP (including those in the 2011 budget).
- Deficit path: from 9.1 percent of GDP in 2010 to 3 percent of GDP by 2013.
- Pace: strong and frontloaded adjustment; undertaking such an adjustment in only three years is described as "extremely ambitious by any standard."
- Implementation: half of the necessary adjustment already incorporated into the approved 2011 budget; government has identified all measures needed to reach the 3 percent target.
- Social protection in fiscal context:
  - Low-income earners will be exempt from public sector wage cuts.
  - Low-income pensioners will be exempt from a planned pension freeze.
  - Enhanced means testing for all social transfers.
  - Protection from a co-payment increase in healthcare for the poor.
  - Reduced period needed to access unemployment insurance.

### Structural reform and competitiveness measures
- Three-pronged strategy: tackle structural problems, strengthen fiscal policy, ensure financial sector stability.
- Proposed labor cost measure: sharp reduction in social security contributions in the order of 3–4 percent of GDP (offset by other tax and expenditure adjustments).
- Targeted nontradable sectors for increased competition: electricity, transportation, and telecommunications.
- Instruments: regulatory reform and accelerated privatization to reduce excessive profits and increase competition.
- Labor market reforms: address the "dual contract" problem by aligning protections for open-ended and fixed-term hires; increase training opportunities for low skilled workers.

### Financial sector stability measures
- Assessment: Portuguese financial sector judged "fundamentally sound" but affected by government problems and reduced access to wholesale markets.
- Capital adequacy goal: increase in capital adequacy ratios to 10 percent (already under way) to restore confidence and return banks to wholesale markets.
- Backstops: fully funded backstop mechanisms for capital and liquidity support included in the program should some banks need help.
- Stance: preference for market-based restructuring, with contingency support available.

### Distributional choices and public sector measures
- Examples of difficult measures:
  - 5 percent cut in public sector wages in 2011.
  - Wages and pensions frozen until 2013.
  - Civil service staff numbers reduced in both 2012 and 2013.
  - Suspension of all new public-private partnerships and large infrastructure projects.
  - Streamlining spending on state-owned enterprises, local and regional government, and defense.
- Equity focus: measures aim to attack rent-seeking and privileges of the relatively few and well-off; design a fairer and more equitable tax system.

### Job creation and social outcomes
- Priority: create new jobs, especially for the young; address high youth unemployment.
- Mechanisms for job creation: competition-enhancing reforms, labor market flexibility, reducing disproportionate burdens on temporary workers.
- Training: increased training opportunities for low skilled workers.

### Political economy and program credibility
- Need for broad political support and ownership for successful implementation.
- Encouraging signs: discussions with main opposition parties suggest broad consensus exists.
- Justification for expected success: program described as comprehensive, multi-year, credible, frontloaded, economically and socially balanced, and backed by exceptional international support.

*International Monetary Fund.*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Survey Interview](https://www.imf.org/en/news/search)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Read the press release](https://www.imf.org/external/np/sec/pr/2011/pr11160.htm)
- [Read the EU-IMF statement](http://www.imf.org/external/np/sec/pr/2011/pr11162.htm)
- [Portugal fast facts](https://www.imf.org/external/np/exr/countryfacts/prt/index.htm)
- [Interview](https://www.imf.org/external/np/tr/2011/tr041411b.htm)
- [Outlook for Europe](https://www.imf.org/external/pubs/ft/survey/so/2011/CAR041711A.htm)
- [IMF support helps spur growth](https://www.imf.org/external/pubs/ft/survey/so/2011/NEW041511A.htm)
- [Extended Fund Facility](https://www.imf.org/external/np/exr/facts/eff.htm)
- [financing package](https://www.imf.org/external/np/sec/pr/2011/pr11162.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/soint050611a_