Portugal prepaid 1,7 billion euros of the IMF loan, evidencing the economy’s robustness

Last week, Portugal prepaid an additional tranche of the IMF loan, equivalent to 1,7 billion euros, with an original maturity of 2019.

With this operation, Portugal concluded the prepayment of half of the total IMF loan, thus taking advantage of the waiver granted by the EU institutions in February 2015. The prepayment completed about six months ahead of schedule, reflects the robustness of the economic and financial conditions in Portugal.

Regarding last year’s evolution, a consensus is emerging that Portugal is turning the corner from the crisis. Economic reforms and adjustments underpin a recovery that has positively surprised many observers. The main international institutions (OECD, European Commission, IMF) have in their reports highlighted the progress Portugal has achieved in economic and financial prospects.

The recovery of the Portuguese economy in the second half of 2016, prompted positive revisions to growth forecasts by international organizations. The labor market continued to improve strongly, with employment growth and sustained reduction in unemployment, which is key to maintain a broad consensus on the ongoing reforms.

Portugal has met the budget targets, it reached in 2016 the lowest overall deficit since 1974 and the highest primary balance since 1992. The 2017 fiscal year will maintain this positive trend.

The reports of international organizations note that the external rebalancing of the economy has been successful and sustainable, as evidenced by the improvement in the current and capital account surplus. External debt declined steadily and the International Investment Position of the Portuguese economy also improved significantly in 2016.

Banking sector difficulties have been identified over the years as a vulnerability. The reports on Portugal also highlight the progress accomplished and refer to the continued monitoring. As elsewhere in Europe, banks require permanent attention. A combination of solutions has been implemented over the past year, including rehabilitation measures and the opening of banks' capital to solid international investors.

Last, international institutions encouraged all countries to prepare for a potentially more uncertain international economic and financial environment. In this regard, the significant improvement in the Portuguese public debt structure (longer, cheaper and in a more diversified investor base) is a key source of resilience in such an environment.

Overall, Portugal has generally under-promised and over-achieved, earning increased credibility over time.

Lisbon, 20th of February, 2017


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