The IMF lamented today that the state budget draft for 2016 assume a ‘relaxation of fiscal policy “, considering that Portugal should have” ambitious enough “objective and maintain adequate cushions to respond to the risk.
the International Monetary Fund (IMF) today published its statement to account for the end of the third rescue post-program evaluation in Portugal, which ended on Wednesday and joined again in Lisbon and for a week the staff of the IMF, the European Commission and the European Central Bank.
in the statement, the institution led by Christine Lagarde said that “the draft budgetary plan for 2016 assumes a relaxation of fiscal policy “noting that it is estimated that” the structural primary balance [excluding the costs of the public debt and the effects of the economic cycle] has been worsened by 0.5% of GDP in 2015 and to come down over 0.8% in 2016 “.
in the draft state budget for 2016, presented on 22 January, the Government stated that the budget deficit stayed at 2.6% of Gross Domestic Product (GDP), the balance primary (excluding interest on debt) reached the 1.9% of GDP and the structural deficit (which excludes the effects of the economic cycle) were 1.1% of potential GDP.
However the IMF staff now had more pessimistic forecasts, expecting the budget deficit close the year at 3.2% of GDP, the primary balance is 1.4% and the primary structural balance is at 2.2% of potential GDP in 2016.
the Fund recommended that “besides sufficiently ambitious fiscal targets, the authorities should consider to maintain adequate buffers to meet the budgetary risks” and details of these risks, although not the quantify:. “further budgetary costs of proposals such as the 35-hour work week for civil servants and the revaluation of recent privatization and concession agreements, as well as any contingent liabilities generated by the financial sector”
the IMF statement praises the country’s economic recovery, which “has been ongoing for three years,” points out that the unemployment rate is now “close to previous levels” and that “the country has regained the confidence of foreign investors and is obtain loans on international markets on very favorable terms and longer maturities. “
But despite this good news, the Fund warned that” growth prospects remain constrained by high debt levels and the structural bottlenecks “.
so, the institution considers that, on the one hand,” the high public debt leaves little room for a relaxation of fiscal policy “on the other,” is accurate new reforms to increase potential of economic growth, mitigate the risk of deterioration and ease the debt burden of the private sector. “
As for growth, technical IMF mission led by Subir Lall expects,” taking into account the [Portuguese] economy still faces high levels of debt and structural constraints, “growth should” gradually decrease as to dissipate the impact of favorable external conditions. “
After an increase of 1.5% in 2015, the Fund anticipates a slowdown in the pace of growth and predicts that the economy will grow 1.4% this year, a behavior that will be due only to domestic demand. For 2017, the IMF forecast is for growth of 1.3% and again driven by domestic demand, since the external demand should penalize economic activity, according to projections of the institution.
Stressing that “the risks remain tilted to the downside,” the IMF warned of the possibility of a rise in sovereign risk premia to the high uncertainty regarding global growth and recent developments in the financial sector. “
for the Fund, Portugal “need to consolidate the progress made in stabilizing the public debt in recent years,” since “the continuation of these efforts will help maintain the credibility achieved at great cost and market confidence.”
Despite having completed the Economic and Financial assistance Programme (Programme) in May 2014, both the IMF and the European Commission will hold regular missions (twice a year) to Portugal until the country refund most loans.
European rules require that when a country enters into an assistance program remains under surveillance until they pay at least 75% of the amount received. In the case of the IMF, the rules of the post-program monitoring processes determine which countries are obliged to this monitoring until the debt to pay less than 200% of its quota in the Fund.
ND / / ATR
Lusa / end
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