{ "title": "Portugal: Staff Concluding Statement of the 2022 Article IV Mission", "publication": "IMF News, May 16, 2022", "sourceUrl": "https://www.imf.org/en/news/articles/2022/05/13/mcs051622-portugal-mission-concluding-statement-2022-article-iv", "canonical": "https://www.imf.org/en/news/articles/2022/05/13/mcs051622-portugal-mission-concluding-statement-2022-article-iv", "overlayPath": "/en/news/articles/2022/05/13/mcs051622-portugal-mission-concluding-statement-2022-article-iv/index.md", "summary": "Portugal: title goes here", "publishDate": "2022-05-16", "sections": [ { "heading": "Mission and context", "content": "- Mission led by Rupa Duttagupta conducted discussions during October 21-November 4, 2021 (virtual) and May 9-13, 2022 (in-person).\n- Portuguese economy gained ground in 2021 after a deep pandemic-induced recession; economy was harder hit than the euro area (EA) due to relevance of tourism.\n- Strong vaccination drive allowed early lifting of activity restrictions and supported the recovery through early 2022.\n- New risks from the war in Ukraine: spillovers through higher commodity prices, greater supply bottlenecks, weaker confidence, softer external demand, and tighter financial conditions." }, { "heading": "Economic outlook and risks", "content": "- Growth projections:\n - \"about 4.5 percent in 2022 and 2 percent in 2023.\"\n - \"Over the medium term, growth is projected to moderate to below 2 percent\"\n - \"output still remaining some 2 percent below its pre-pandemic trend by 2027.\"\n- Revisions:\n - \"This represents a cumulative downgrade of about one percentage point relative to pre-war.\"\n- Drivers:\n - Growth expected to be led by private consumption, NGEU-backed public investment, and exports; tourism reaching its pre-pandemic level in 2023.\n- Inflation:\n - \"Inflation is projected to rise to 6 percent in 2022 and start receding in 2023 on the back of declining energy and food prices.\"\n- Downside risks (tilted to the downside):\n - Exceptional uncertainty surrounding the war and potentially new virus waves.\n - Tighter financial conditions could hurt growth and the fiscal position.\n - Effects of the end of loan moratoria have not yet fully materialized and could expose higher insolvencies, lowering investment and bank capital.\n - Slower use of NGEU funds.\n - Public debt will remain high despite projected decline.\n - Rising real estate prices constitute an added vulnerability.\n- Upside scenarios:\n - Continuation of strong tourism recovery.\n - Further bounce-back from pent-up demand supported by high vaccination rates.\n - Higher payoffs from NGEU investments." }, { "heading": "Policy priorities (overview)", "content": "- Balance short-term urgencies (high energy prices and war impacts) with:\n - Smooth transition to private-led growth.\n - Rebuilding fiscal space.\n - Advancing reforms for a more resilient economy.\n- Medium-term emphasis:\n - Structural reforms (including in the context of the Recovery and Resilience Plan, RRP).\n - Sustained public investment.\n - Fiscal consolidation within a medium-term plan to raise growth potential and accelerate income convergence to the EA." }, { "heading": "Fiscal policy", "content": "- Near term:\n - Unwinding of COVID-19 measures while maintaining a broadly supportive fiscal policy in 2022 is appropriate.\n - Excluding exceptional COVID-19 measures, \"a projected fiscal deficit of 2.4 percent of GDP is appropriately accommodative.\"\n - Authorities have recently taken measures to mitigate the impact of high energy prices.\n - NGEU grant-financed spending provides additional support.\n - \"Some 2 percent of GDP of the 2020–21 fiscal measures are expected to be permanent.\"\n - Recommendation: further support should be sufficiently targeted and temporary; broad-based price measures and tax cuts should preferably be replaced with more targeted and temporary support for vulnerable households and viable firms.\n - Fiscal policy should be nimble to provide targeted contingency measures under severe downside risks and ready to achieve more ambitious fiscal savings if the economy surprises to the upside.\n- From 2023 (medium term):\n - \"A gradual fiscal adjustment will be needed to rebuild fiscal space, address ageing-related spending pressures, raise public investment, and reduce debt-related risks.\"\n - Early announcements of specific fiscal reforms and effective implementation of the Budgetary Framework Law (BFL) would bolster credibility.\n - Recent amendments to the BFL to strengthen the budgetary process and improve integration of the annual budget with the medium-term budgetary framework are welcome.\n- Recommended growth-friendly fiscal adjustment focus areas:\n - Tax reforms:\n - Greater efficiency, elimination of distortions, broadening the tax base.\n - Strengthen tax policy and tax expenditure analysis.\n - Streamline and constrain proliferation of tax incentives.\n - Revisit reduced VAT rates.\n - Strengthen less distortionary instruments, such as property and environmental taxes.\n - Rationalizing current spending:\n - Bolster pension sustainability.\n - Strengthen financial management in the national health service.\n - Improve financial sustainability and governance in state-owned enterprises.\n - Better target social benefits.\n - Contain the public wage bill via a comprehensive review of public employment and compensation structures.\n - Maintaining strong growth-enhancing public investment:\n - Public investment has fallen below EU peers over the last decade.\n - NGEU funds can help reverse this trend with scaled up R&D, digital and climate transitions.\n - Efficient and transparent planning, budgeting, implementation, and oversight are key.\n - \"Stronger fiscal efforts during 2023–26 will enable maintaining public investment beyond the RRP.\"" }, { "heading": "Corporate and financial policies", "content": "- Corporate sector solvency:\n - Support measures estimated to have saved \"some one-third of jobs and 20 percent of NFC output.\"\n - Pandemic-induced solvency needs estimated to have risen by \"some 2¼ percent of GDP,\" with accommodation and food services and transport most impacted.\n - Additional vulnerabilities from the war, cost-push pressures, supply chain disruptions, and higher interest rates could increase insolvency risk.\n- Policy recommendations for corporate sector:\n - Resilience and Capitalization Fund (managed by Banco Português de Fomento, BPF) expected to support debt reduction and recapitalization of viable corporates.\n - Prompt implementation of targeted viability-based solvency support leveraging banking sector technical expertise for NFC viability assessments.\n - Clearly define the role of the BPF to ensure accountability and avoid market distortions.\n - Establish and announce a short-term deadline for the suspension of the duty to file for insolvency to allow normalization of insolvency and restructuring system.\n - Swift liquidation of non-viable enterprises, complemented with targeted support for the vulnerable and active labor market policies for displaced workers.\n - Consider simplifying and strengthening Portuguese restructuring and insolvency law; establish clear guidelines for participation of public creditors in procedures; streamline liquidation procedures by addressing bottlenecks in verification of claims and sale of assets.\n - Continue strengthening insolvency statistics for better analysis.\n- Banking sector and macro-financial risks:\n - Close monitoring of banks’ credit quality remains essential.\n - Impact of end of moratoria and housing market risks are sources of uncertainty.\n - Prudential authorities actively monitoring credit quality; materialization of credit risk has not been as significant as expected early in the pandemic.\n - NPL reduction strategies are progressing, though a few banks have not completed adjustment processes.\n - Ongoing efforts for timely identification, reporting of credit risk, loan classification, and provisioning need to continue.\n - Monitor risks from rising real estate prices.\n - Once recovery is well established, Banco de Portugal could consider introducing a positive rated countercyclical capital buffer or a sectoral systemic risk buffer against macro-financial risks from banks’ real-estate exposures.\n - Rebuilding capital buffers should proceed gradually; dividend distributions and share buybacks should be cautious until uncertainties on capital needs are better assessed." }, { "heading": "Structural policies", "content": "- Recovery and Resilience Plan (RRP) as an opportunity to transform the economy to be more resilient, dynamic, and green.\n- Labor market and skills:\n - Advance reforms to raise skill levels and increase competitiveness.\n - Address skill gap and labor market duality to unlock growth.\n - RRP includes targets and reforms to improve quality of education and training, provide lifelong learning for low-skilled adults, reduce digital skill gaps, and raise employability.\n - Need to address labor duality due to differences between permanent and temporary contracts.\n - Active labor market policies (planned in the RRP and the 2022 Budget), higher flexibility of permanent contracts, and improved protection of temporary workers would help reduce contract differences.\n- Climate and energy:\n - Portugal has high share of electricity from renewables; carbon tax introduced in 2015; last coal-fired power plant phased out in 2021.\n - Authorities plan to invest \"3 percent of GDP by 2030\" to support climate-related research and innovation.\n - Achieving RRP milestones for sustainable mobility, energy efficiency, renewables, decarbonization and the bioeconomy requires accelerated implementation of the Roadmap for Carbon Neutrality 2050 and the National Energy and Climate Plan.\n - Priority measures: promote use of biofuels and hydrogen in transport, accelerate renovation of buildings.\n - Consider further adjustment of the carbon price combined with measures to offset impact on the most vulnerable households.\n - Given exposure to extreme weather events, raise investment in risk prevention, preparedness, and climate adaptation." }, { "heading": "Closing", "content": "- Mission thanks interlocutors in Portugal—the government agencies, Banco de Portugal, the private sector, and civil society—and the European Central Bank for sharing their time and knowledge.\n\nPortugal: Staff Concluding Statement of the 2022 Article IV Mission (May 16, 2022).\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/2022/05/13/mcs051622-portugal-mission-concluding-statement-2022-article-iv" } ], "bullets": [ "[Markdown version](/en/news/articles/2022/05/13/mcs051622-portugal-mission-concluding-statement-2022-article-iv/index.md)", "[Structured JSON version](/en/news/articles/2022/05/13/mcs051622-portugal-mission-concluding-statement-2022-article-iv/index.json)", "[Bundle manifest](/en/news/articles/2022/05/13/mcs051622-portugal-mission-concluding-statement-2022-article-iv/bundle-manifest.json)", "Published: May 16, 2022", "Mission led by Rupa Duttagupta conducted discussions during October 21-November 4, 2021 (virtual) and May 9-13, 2022 (in-person).", "Portuguese economy gained ground in 2021 after a deep pandemic-induced recession; economy was harder hit than the euro area (EA) due to relevance of tourism.", "Strong vaccination drive allowed early lifting of activity restrictions and supported the recovery through early 2022.", "New risks from the war in Ukraine: spillovers through higher commodity prices, greater supply bottlenecks, weaker confidence, softer external demand, and tighter financial conditions.", "Growth projections:", "Revisions:", "Drivers:", "Inflation:", "Downside risks (tilted to the downside):", "Upside scenarios:", "Balance short-term urgencies (high energy prices and war impacts) with:", "Medium-term emphasis:", "Near term:", "From 2023 (medium term):", "Recommended growth-friendly fiscal adjustment focus areas:", "Corporate sector solvency:", "Policy recommendations for corporate sector:", "Banking sector and macro-financial risks:", "Recovery and Resilience Plan (RRP) as an opportunity to transform the economy to be more resilient, dynamic, and green.", "Labor market and skills:", "Climate and energy:", "Mission thanks interlocutors in Portugal—the government agencies, Banco de Portugal, the private sector, and civil society—and the European Central Bank for sharing their time and knowledge.", "[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)" ], "alternates": { "markdown": "/en/news/articles/2022/05/13/mcs051622-portugal-mission-concluding-statement-2022-article-iv/index.md", "json": "/en/news/articles/2022/05/13/mcs051622-portugal-mission-concluding-statement-2022-article-iv/index.json", "bundleManifest": "/en/news/articles/2022/05/13/mcs051622-portugal-mission-concluding-statement-2022-article-iv/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T01:12:46.135Z" }