The tone is less prescriptive than the previous three years, but the recipe remains the same: Christine Lagarde does not believe in the budgetary targets that António Costa traced to Portugal and calls for more effort and less generous. Postponing the full replacement of civil servants’ salaries, keep the IRS surcharge and prepare a plan B that fulfills the deficit targets are some of the IMF recommendations after another visit to Lisbon.
Workers Public administration received in January, 20% of the wage cut imposed by the troika. In April, they are up 20% and the rate will remain the three months to October, when it will reach the level of 2011. The total reversal of cutting costs 450 million and will have a direct impact on the accounts this year. So, say the technicians Washington, the rate of return should slow down.
“On the expenditure side, the proposals for the full reversal of the salaries of civil servants this year should be reconsidered for a time horizon more long while to be developed simultaneously more concrete proposals for reducing expenses, “the IMF report supplementing the third financial adjustment post-program mission.
not only is the return of wages which should be rethought, also “the reversal of IRS surcharge and the VAT reduction in certain categories should be postponed,” at a time when all workers with incomes up to EUR 7000 have seen wages increase after the reduction of this contribution to 1 %. The cost to the state coffers is 430 million
The IMF remember that. “The policy changes – implemented or under consideration – imply a partial reversal of the measures adopted during the adjustment program” and stresses that in cases of state wages and personal income tax surcharge, the return scenarios must wait until “identified appropriate fiscal space.”
Margin only Plan B
the government hopes that Portugal close 2016 with a deficit of 2.6% of GDP. The goal is too ambitious, according to the IMF, which does not believe in less than 2.9%, after 4.4% in 2015. In order to accomplish the goal, Lagarde warns that you need a “contingency plan”. That is, a Plan B to take a step back in the policies assumed in the state budget and undo the investors’ distrust of Portugal.
Measures “rationalization of public spending to contain the pressures of wages and pensions and maintain margins for budgetary maneuver “should be taken into account. In the background, looking back at the expense generated by reforms and salaries in the state representing “an effort of 25% of GDP”
Without this additional effort. – That Brussels also insists that it is prepared to “use if necessary “- not the IMF also believes that there is scope for fiscal adjustment and points out that the structural deficit will increase by 0.5 points in 2016, reaching 2% of GDP
. government reacts
the doubts of the IMF found no echo in the ministry of Mario Centeno. In a statement, the Finance point out that the non-fulfillment of goals last year, has to do with “structural deficiencies that the IMF identifies the Portuguese economy were not resolved during the program Adjustment”. In relation to the budget this year, Mario Centeno says doubts “find no support in the developments since January, such as strict budgetary implementation of the first two months of the year, successful debt placement and strengthening of confidence indicators families and businesses. “
In any case, the Executive” reaffirms its commitment to achieve its targets through the strict implementation of the State Budget for 2016 “.
More than goals
But the fears of the IMF go well beyond the deficit and debt. The fund repairs to the growth of the Portuguese economy will be fixed at 1.4% in 2016. But “the medium term” will fall to 1.2%. The warrant progress “modest” the recovery is a reduction in private consumption justified by the fall of the slowdown in the unemployment rate and the fact that household savings are already at historic lows, unable to feed domestic demand.
also the banks should be cause for fear and alert. “Recent events” show that the financial sector is still full of weaknesses and “to avoid negative surprises and protect taxpayers”, banks should strengthen their profitability, asset quality and their managers. That is, more demanding in the selection of the bankers.
At the same time, it must have themselves in mind the level of indebtedness of the companies weighing on banking balance sheets and own economic activity and catch “potential growth of the economy. “
Still in the business sector, the IMF highlights concern to see that the transport sector returned to the jurisdiction of the State. “Revisiting the privatization and concession agreements can undermine investor confidence and generate additional budgetary costs to make viable public enterprises,” said the background. The worst, he says, is not the agreement that makes the state return to 50% of TAP is the cancellation of urban transport concessions that leave the public purse “responsible for the operations and financing of these loss-making entities.” The government assumes that there are “legal concerns” of these procedures.
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