{
  "title": "Portugal: Staff Concluding Statement of the 2019 Article IV Mission",
  "publication": "IMF News, May 17, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/05/17/portugal-staff-concluding-statement-of-the-2019-article-iv-mission",
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  "summary": "Economic expansion in its sixth year; growth slowed in 2018 after 2017.",
  "publishDate": "2019-05-17",
  "sections": [
    {
      "heading": "Macroeconomic outlook and key statistics",
      "content": "- Economic expansion in its sixth year; growth slowed in 2018 after 2017.\n- Real GDP growth:\n  - 2.7 percent in 2017\n  - 2.1 percent in 2018\n  - Forecast to ease to 1.7 percent in 2019\n  - Estimated medium-term potential: 1.4 percent\n- Unemployment rate: 6.5 percent (seasonally adjusted) in the first quarter of 2019.\n- Inflation: consumer prices decelerated in 2018 and are expected to remain low.\n- External current account: shifted into deficit in 2018 and projected to post moderate deficits in coming years.\n- Public debt trajectory: expected to decline in 2019 and, absent adverse developments, to fall to about 100 percent of GDP in 2024."
    },
    {
      "heading": "Risks to the outlook",
      "content": "- Main risks are external:\n  - Further deceleration in Europe.\n  - Rising protectionism.\n  - A disorderly Brexit, which could notably affect tourism.\n- Domestic risks:\n  - Pressures for increased spending from vocal groups.\n- Policy implication:\n  - Maintaining strong domestic policies is essential to mitigate external risks and reduce vulnerabilities from high public and private debt."
    },
    {
      "heading": "Fiscal position, projections, and recommended consolidation",
      "content": "- 2018 headline fiscal balance improved by 2.5 percent of GDP, reaching -0.5 percent of GDP.\n  - Improvement drivers: large drop in bank recapitalization costs, declining interest bill, stronger-than-potential growth, tight budget execution.\n- 2019 fiscal targets and projections:\n  - 2019 nominal fiscal deficit target: -0.2 percent of GDP — described as feasible.\n  - The deficit is projected to be eliminated in 2020 under unchanged policies.\n- Recommendation for additional consolidation:\n  - The mission recommends an additional 1 percent of GDP tightening of the structural primary balance over the next two years.\n  - In case of a material downturn, a neutral fiscal stance would be appropriate provided the public debt ratio remains on a downward trajectory."
    },
    {
      "heading": "Composition of public spending and structural fiscal reforms",
      "content": "- Need to rebalance spending toward higher-priority public investment (e.g., healthcare).\n- Concerns about the government wage bill:\n  - Latest official projections of the government wage bill are significantly higher than projected last year, implying additional pressure on public finances.\n  - The stop-and-go cycle of career progressions since 2005 has been disruptive and raises sustainability questions.\n- Policy recommendations:\n  - Conduct a comprehensive review of the level, composition, and rules of public employment to better control current spending without sacrificing service delivery.\n  - Consider targeted pension system adjustments to curb aging-related expenditure increases and to reduce high inequality among pensioners (noted as high by European standards)."
    },
    {
      "heading": "Banking sector health and supervision",
      "content": "- Progress:\n  - Bank capital ratios boosted by 2017-18 capital augmentations.\n  - Profitability has improved; banking system reported positive profits since the beginning of 2017.\n  - Nonperforming loan (NPL) ratio declined to 9.4 percent at end-2018, with a provisioning ratio above 50 percent.\n- Remaining challenges:\n  - NPLs remain high relative to desired standards.\n  - Bank profitability remains low relative to pre-crisis levels and below the cost of equity.\n- Supervisory recommendations:\n  - Ensure banks follow through on NPL reduction targets.\n  - Strengthen corporate governance, internal controls, and risk management.\n  - Encourage banks to improve operational efficiency and profitability.\n  - Reform financial supervision to ensure independence of supervisors, timely decision making, cost efficiency, and a leading macroprudential role for the central bank.\n  - The financial supervision reform bill aims to enhance coordination among the three sectoral supervisors; concerns raised by Banco de Portugal, Comissão do Mercado de Valores Mobiliários, and Autoridade de Supervisão de Seguros e Fundos de Pensões merit careful consideration in Parliament."
    },
    {
      "heading": "Structural reforms to raise medium-term growth and savings",
      "content": "- Key areas to raise productivity and investment:\n  - Streamline the regulatory environment.\n  - Strengthen product market competition, notably in energy and transport.\n  - Improve skills and the efficient use of labor.\n  - Enhance labor market flexibility by making permanent contracts less rigid.\n- Saving and investment balance:\n  - Corporate and household saving are below Euro Area averages.\n  - Sustaining higher investment rates without external imbalances requires stronger domestic saving rates.\n- Policy measures to boost saving:\n  - Issue regulations for complementary second-tier occupational pension schemes as called for in existing legislation.\n  - Explore options, including tax incentives, to encourage well-regulated complementary occupational and individual retirement saving schemes."
    },
    {
      "heading": "Concluding note",
      "content": "- The mission emphasizes that strong policies at home are needed to make Portugal more resilient and to foster higher productivity, investment, and saving for balanced long-run growth.\n- The mission expresses gratitude to the Portuguese and European authorities and other interlocutors.\n\nPortugal: Staff Concluding Statement of the 2019 Article IV Mission\n\n---\n\n\n References\n\n- Portugal and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/05/17/portugal-staff-concluding-statement-of-the-2019-article-iv-mission"
    }
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    "Published: May 17, 2019",
    "Economic expansion in its sixth year; growth slowed in 2018 after 2017.",
    "Real GDP growth:",
    "Unemployment rate: 6.5 percent (seasonally adjusted) in the first quarter of 2019.",
    "Inflation: consumer prices decelerated in 2018 and are expected to remain low.",
    "External current account: shifted into deficit in 2018 and projected to post moderate deficits in coming years.",
    "Public debt trajectory: expected to decline in 2019 and, absent adverse developments, to fall to about 100 percent of GDP in 2024.",
    "Main risks are external:",
    "Domestic risks:",
    "Policy implication:",
    "2018 headline fiscal balance improved by 2.5 percent of GDP, reaching -0.5 percent of GDP.",
    "2019 fiscal targets and projections:",
    "Recommendation for additional consolidation:",
    "Need to rebalance spending toward higher-priority public investment (e.g., healthcare).",
    "Concerns about the government wage bill:",
    "Policy recommendations:",
    "Progress:",
    "Remaining challenges:",
    "Supervisory recommendations:",
    "Key areas to raise productivity and investment:",
    "Saving and investment balance:",
    "Policy measures to boost saving:",
    "The mission emphasizes that strong policies at home are needed to make Portugal more resilient and to foster higher productivity, investment, and saving for balanced long-run growth.",
    "The mission expresses gratitude to the Portuguese and European authorities and other interlocutors.",
    "[Portugal and the IMF](http://www.imf.org/external/country/PRT/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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